Diageo hails H1 growth across major markets

26th January, 2017 by Amy Hopkins

Johnnie Walker Scotch whisky maker Diageo has reported a “stronger performance” in the first six months of its fiscal year, with a return to growth across major markets and brands.

Diageo’s Scotch portfolio saw a better performance in the firm’s latest half year results

In the six months to 31 December 2016, the UK-based drinks group’s reported net sales grew 15% to £6.4 billion (US$8.1bn), while operating profit soared 28% to £2bn (US£2.5bn), both bolstered by better currency exchange.

The group witnessed a return to growth across all key regions in H1.

“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,” said Diageo CEO Ivan Menezes.

Diageo’s North American market continued success seen in FY 2016 with a 16% reported net sales boost. Its American whiskey, Scotch and Tequila portfolios performed well, while Diageo’s total US spirits business was up 4%.

“Pricing adjustments” continued on Smirnoff, Captain Morgan and Ketel One in North America to “ensure competitiveness”.

In Europe, Russia and Turkey, Diageo’s reported net sales grew 13%, driven by Johnnie Walker and Baileys. Russia’s 29% reported net sales increase was attributed to “price rises reflecting currency weakness in a tough economic and exchange environment”, however this resulted in a 6% volume loss.

Despite weakness in Brazil, Latin America and the Caribbean performed well, with a 20% reported net sales increase. The region’s Scotch sales were up 15%, led by a huge 46% jump for Buchanan’s.

In Africa, reported net sales grew 13%, despite a 22% decline for Guinness in Kenya. Nigeria benefitted from the launch of McDowell’s Indian whisky, which helped total spirits sales in the country grow 47%.

Asia Pacific witnessed 12% growth in reported net sales, but was impacted by Thailand’s mourning period for King Bhumibol Adulyadej, with net sales declining 17% following the closure of on-trade outlets.

Category growth

All of Diageo’s spirits categories saw growth in both organic and reported terms except vodka, which was impacted by the 2% organic declines of Smirnoff and Ketel One. Both brands’ US sales were hit by price increases.

Johnnie Walker, Baileys, Tanqueray and Captain Morgan all experienced gains.

“Diageo is building a stronger, more consistent, better performing company,” said Menezes. “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.”

Menezes added that his expectations for a stronger 2017 fiscal year “remain unchanged”, targeting a mid-single-digit top line growth.

Diageo expects that in its full 2017 fiscal year, the strengthening US dollar against the euro will enhance net sales by £1.4bn (US$1.7bn) and operating profit by about £460m (US$582m).

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