FDBusiness.com

Diageo has reported a 1.7% increase in net sales to £6.53 billion and a 6.1% rise in operating profit to £2.2 billion for the half year ended 31 December 2017, as organic growth was partially offset by adverse currency exchange factors. All of the global drinks group’s regions contributed to the broad based organic net sales growth, up 4.2%, and organic volume grew 1.8%.

Organic operating profit grew 6.7%, ahead of top line growth, as higher marketing investment was more than offset by efficiencies from Diageo’s productivity programme. Cash flow continued to be strong and in line with the previous year, with net cash from operating activities at £1.2 billion and free cash flow at £1 billion.

Ivan Menezes, chief executive of Diageo, comments: “These results demonstrate continued positive momentum from the consistent and rigorous execution of our strategy. We have delivered broad based improvement in both organic volume and net sales growth. We have increased investment behind our brands and expanded organic operating margin through our sustained focus on driving efficiency and effectiveness across the business.”

Ivan Menezes, chief executive of Diageo.

He elaborates: “By consistently delivering on our six strategic priorities, Diageo continues to get stronger: we have better consumer insight through superior analytics, improved execution on brand and commercial plans and have embedded everyday efficiency across the business through our productivity initiatives. This has enabled continued growth, improved agility, and consistent cash flow generation.”

The Europe and Turkey region delivered 4% net sales growth to £1.599 billion and operating profit rose by 12% to £599 million during the first half. In Europe, net sales were up 4% largely driven by Great Britain and Continental Europe, with continued share gains in spirits, up 20bps. Growth was broad based across all key categories, but primarily driven by gin, where Tanqueray gained share in a growing category and Gordon’s benefitted from the launch of its Pink variant. Guinness was up 4%. Net sales of Captain Morgan grew double digit and the brand continued to gain share in the category. Scotch net sales were up 2% led by growth in Russia and Europe Partner Markets partially offset by weakness in J&B in Iberia. Reserve brands continued to deliver a good performance with net sales up 8% largely driven by Cîroc, Zacapa and Bulleit.

In Turkey, net sales were up 10% largely driven by price increases across categories. Operating margin improved 239bps as an up-weight in marketing investment was offset by the on-going productivity initiatives and lapping other one-off operating costs.

Diageo’s two biggest global categories – Scotch and beer – both performed solidly. Scotch, which represents 27% of Diageo’s net sales, was up 3% with broad based growth across all regions except Africa which was impacted by challenges within the third party distributor network in Cameroon. Johnnie Walker delivered a strong performance with net sales up 7% and primary scotch brands net sales increased 8% largely driven by Black & White in Latin America and Caribbean and Asia Pacific.

Beer represents 15% of Diageo’s net sales and grew 4%. Growth was largely driven by Guinness and Dubic, a value brand in Nigeria. Guinness net sales were up 4% with good performance in Europe, as the brand continued to benefit from the successful launch of the ‘The Brewers Project’ including Guinness Hop House 13 Lager, Nigeria and Korea. In East Africa performance of Senator was impacted by uncertainty following the presidential election in August 2017.

Diageo’s financial performance expectations for the full year remain unchanged. “We are confident in our ability to deliver consistent mid-single digit top line growth and 175bps of organic operating margin improvement in the three years ending 30 June 2019,” he adds.