This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.
Diageo loses £400 million net sales in H1
Diageo has witnessed a net sales drop of £400m during the first six months of its financial year, with the group’s key North American market suffering from Cîroc’s overall 34% sales decline.
Despite a mixed brand performance, Diageo’s CEO Ivan Menezes hailed a “stronger top line performance”
In the six months to December 2015, the world’s largest alcoholic drinks group reported a net sales decline of 5% to £5.6bn. Diageo also saw its operating profits fall £156m (3%) to £1.7bn.
The firm blamed adverse exchange rates against the sterling, including the euro, Venezuelan bolivar and the Brazilian real. Diageo estimates that if current exchange rates persist, its full year 2015/16 net sales could plummet by £260m.
H1 sales were also impacted by the sale of “non-core assets”, such as Bushmills Irish whiskey and a large portion of its global wine portfolio.
However, in organic terms, discounting the affect of currency changes, the group delivered 1.8% net sales growth, and 1% organic volume growth. Diageo also reported growth for most of its ‘Global Giants’, in both organic and reported terms.
“Diageo has become a stronger, more competitive business,” said the group’s CEO Ivan Menezes. “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.”
Diageo’s vodka portfolio, which accounts for 12% of its total sales, declined by 9%. Efforts to boost beleaguered Smirnoff vodka proved successful after three years of declines (Brand Champions data), with the brand showing a 1% net sales increase in developed markets.
Cîroc decline
However, super-premium Cîroc vodka saw reported net sales fall by 34% due to Diageo’s new “replenishment model on innovations” in the US, which reduced shipments. The brand was also negatively impacted by the later launch of Cîroc Apple last year, compared to the release of Cîroc Pineapple in 2014/15.
Diageo’s Scotch whisky portfolio, which represents 25% of the group’s net sales, sat relatively flat with a 1% organic increase and reported drop of 8%. “Good performances” were noted in Latin America and the Caribbean, but portfolio leader Johnnie Walker witnessed a reported net sales drop of 5%.
Johnnie Walker Red Label and Johnnie Walker Black Label were hit by weakness in China and the broader Asia-Pacific region.
Following previous declines, Captain Morgan’s sales were up 3% due to growth in Europe, Russia and the US, while performances in Great Britain and the US signalled a “strong turnaround” for Baileys, which increased organic sales by 6% and reported sales by 2%.
Tanqueray’s organic net sales grew 8% due to double-digit growth in Latin America, the Caribbean and Asia-Pacific.
All but two of Diageo’s 12 ‘Local Stars’ – Shui Jing Fang baijiu (+72%) and Crown Royal Canadian whisky (+13%) – experienced double-digit reported net sales declines. Organically, only J&B, Windsor, Bundaberg and Bell’s declined.
Crown Royal Regal Apple boosted Diageo’s North American whiskey portfolio, which also benefited from “strong growth for Bulleit”.
Looking to the next six months, Menezes said: “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.”