FDBusiness.com

Benefiting from accelerated organic growth and favourable currency factors, Diageo has reported a 28% rise in operating profit to £2.065 billion on net sales up 14.5% to £6.421 billion for the six months ended 31 December 2016. First half volume growth was 1.8% and net sales growth was 4.4%. Organic operating profit grew 4.4%, in line with top line growth, driven by gross margin improvement and good progress on productivity offset by implementation costs and the profit on sale of the UB shares in the prior period.

“We have delivered a strong set of results with broad based improvement in both organic volume and top line growth and this positive momentum demonstrates continued effective execution of our strategy. Highlights this half include improved performance in our US Spirits business and across our Scotch portfolio, driven by our focus on marketing with impact, innovating at scale, expanding our route to consumer, and winning in reserve,” comments Ivan Menezes, chief executive of Diageo. “Progress on productivity supports growth, margin improvement and consistent strong cash flow generation as well as improving our agility.”

He continues: “Diageo is building a stronger, more consistent, better performing company. We are identifying consumer trends faster, expanding the reach of our products across markets and developing trade channels to capture these growth opportunities. Our productivity work is on track, driving efficiency and effectiveness across the business. Our work on trade and marketing spend gives us better data enabling smarter, quicker decisions that generate higher returns.”

Ivan Menezes, chief executive of Diageo.

Diageo expects to deliver a stronger financial performance this year. Ivan Menezes is confident of achieving Diageo’s medium term objective of consistent mid-single digit top line growth and 100bps of organic operating margin improvement in the three years ending 30 June 2019.

In Europe, net sales were up 5% in the first half with Continental Europe the main contributor. The Johnnie Walker and Baileys brands performed strongly. Guinness net sales were up 2% supported by a solid performance of Hop House 13 Lager and Tanqueray gin grew net sales double digit in most countries across Europe. Reserve brands continued to perform well.

In Russia, price rises reflecting currency weakness in a tough economic and exchange environment led to a net sales increase of 6% with volume down 7%. In Turkey volume was down 5% but price increases drove net sales up 5%.

Gross margins were up across the three markets (Europe, Russia and Turkey) driven by positive mix in Europe and price in Russia and Turkey. Operating margin in the region increased 37bps mainly driven by the ongoing productivity work and positive price/mix.