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Diageo Shows Resilience in Challenging Trading Conditions

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Diageo Shows Resilience in Challenging Trading Conditions

Diageo Shows Resilience in Challenging Trading Conditions
February 01
16:05 2016

Adverse exchange and the impact of the disposal of non-core assets has reduced net sales at Diageo by £400 million to £5.606 billion and operating profit by £156 million to £1,717 billion for the six months ended 31 December 2015. However, Diageo reported 1.8% organic net sales growth, on 1.0% organic volume growth and organic operating profit growth of 2.4%.

The disposals included the sale of Bushmills and Gleneagles and the sale of wines in the United States and Percy Fox in Great Britain and beer assets in Jamaica and Asia.

Ivan Menezes, chief executive of Diageo, comments: “Diageo has become a stronger, more competitive business. We have delivered volume growth, a stronger top line, improved the performance of our key brands, driven cost productivity and continued to generate strong cash flow. While trading conditions remain challenging in some markets, Diageo’s brands, capabilities in marketing and innovation and our route to consumer have proved resilient. I am confident that Diageo can deliver improved, sustained performance.”

DiageoJohnnieWalkerProduction2He continues: “For the full year we expect volume growth to drive stronger top line performance, margin to slightly improve and strong cash conversion to continue. This will set us up to deliver better momentum in F17, with productivity gains supporting margin expansion and investment in growth. We remain confident of achieving our objective of mid-single digit top line growth and 100bps of organic operating margin improvement in the three years ending fiscal 19.”

In its Europe, Russia and Turkey region, Diageo continued its momentum in Europe, reported growth in Turkey and achieved net sales growth in Russia during the first half against the prior period although the trading environment there remains challenging. In Europe net sales were up 2% and Diageo gained share, with continued growth in Great Britain and improved performance in Continental Europe and France. Reserve brands in Europe delivered another strong performance with net sales up 18%.

In both Great Britain and Ireland Guinness momentum continued with innovations from ‘The Brewers Project’. Baileys was back to growth as a result of increased in-outlet activation and consumer sampling. Continued investment in Diageo’s route to consumer led to a 10% increase in outlets covered and coverage is expected to increase further in the second half.

In Russia price increases to offset devaluation led to a volume decline of 12% however net sales grew 20% driven by positive brand mix and Diageo gained share in rum although scotch share declined. In Turkey net sales were up 9% with premiumisation in the raki category and double digit growth of Johnnie Walker and Smirnoff. Total operating margin for the region improved 46 bps largely driven by procurement savings in marketing spend.

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