FDBusiness.com

Diageo has reported a 3.7% increase in operating profit pre-exceptionals to £3.819 billion on sales up 0.9% to £12.163 billion for the year ended 30 June 2018, as organic growth was partially offset by adverse currency exchange factors. All regions contributed to the broad based organic growth, with organic net sales up 5.0% and organic volume up 2.5%. Organic operating profit rose by 7.6%, improving organic operating margins by 78 basis points, as higher marketing investment was more than offset by efficiencies from Diageo’s productivity programme.

During the year Diageo returned £1.5 billion to shareholders through a share buyback as the global drinks group delivered strong cash flow generation. Consequently, the Diageo board has approved a share buyback programme to return up to £2.0 billion to shareholders during the year ending 30 June 2019.

“Diageo has delivered another year of strong, consistent performance,” comments Ivan Menezes, chief executive of Diageo. “These results reflect the high performance culture we have created in Diageo, the ongoing rigorous execution of our strategy, our focus on the consumer and our ability to move swiftly on trends and insights.”

Ivan Menezes, chief executive of Diageo.

He elaborates: “The changes we have made in the business and the shifts in culture we continue to drive, ensure we are well placed to capture opportunities and deliver sustained growth. Our financial performance expectations are unchanged and we expect to continue to invest in the business to deliver our mid-term guidance of consistent mid-single digit organic net sales growth and 175bps of organic operating margin expansion for the three years ending 30 June 2019.”

Diageo’s Europe and Turkey business achieved operating profit before exceptional items up 10% to £1.028 billion. The region delivered 4% net sales growth to £2.932 billion, reflecting another year of consistent performance in Europe where net sales were up 4% and a strong performance in Turkey growing net sales by 11%. Europe growth was largely driven by Great Britain, Ireland and Continental Europe, with continued share gains in spirits, up 50bps across Western Europe.

Performance was led by strong growth in gin, where Tanqueray gained share in the fastest growing category and Gordon’s benefitted from the launch of its Pink variant. Guinness was up 6% driven by a good performance for Guinness Draught supported by double digit growth in Hop House 13 Lager.

Net sales of Captain Morgan grew 7%. Johnnie Walker grew 2% despite lapping a strong performance last year. Smirnoff declined 4% driven by Iberia and Great Britain, in line with the vodka category. In Turkey net sales were up 11% driven by volume growth of 5% and price increases across all categories. Operating margin improved 126bps as up-weighting in marketing investment was more than offset by ongoing productivity initiatives and lapping other one-off operating costs.