Diageo Plc reported on Thursday a better than expected half-year results, with sales rising 15% to £6.42bn from £5.61bn a year ago.
The company said that profits rose 8% to £1.51bn from last year’s £1.41bn. The spirits maker noted that a 17% drop in the value of the British pound following Brexit vote had a positive impact on earnings, adding around £850m ($1.07bn) to net sales. On organic basis (stripping out the effects of currency movement on revenue and profits), sales rose 4.4% while operating profits grew 4.4%.
“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 effective execution of our strategy,” said Ivan Menezes, Diageo chief executive officer.
Diageo said that organic sales rose 3% in North America, the company’s biggest market, contributing 34% of group sales, with help from North American whiskey, scotch and tequila. Continental Europe, Russia and Turkey put in strong performances with a 5% organic growth for a region that contributed 24% of group sales. Continental Europe was the main driver with Johnnie Walker and Baileys performing well. Price increases in Russia which is still suffering from fallout in drop in oil price had a positive impact on sales, with net revenue rising 6% but with volumes down 7%. Revenue in Turkey grew 5%, though volume fell 5%. Africa which added 12% of sales to Diageo’s overall revenue saw a 4% increase in organic sales.
In Africa, the company said that beer sales were negatively impacted by a higher duty tax in Kenya, with Guinness and Tusker Lager sales dropping a whopping 22% and 15% respectively. In the spirits segment, net sales grew 20%, with strong performance coming from Smirnoff 1818 and Kenya Cane in Kenya, while premium spirits such as Johnnie Walker Black Label grew 13% in Africa regional markets and Kenya.
Nigeria for the British drinks company posted 6% growth in revenue, with spirits contributing 47% of the sales. Mainstream spirits was up 135% helped by successful launch of brands like McDowell’s No. 1 which is now made locally at Guinness Nigeria Benin City plant. Johnnie Walker on its own grew 22%, while beer lagged at just 1%. Satzenbrau, a value brand from Guinness Nigeria was the main driver in the beer segment, registering a 108% growth, which helped offset 11% and 14% declines in Guinness and Malta Guinness respectively. In the mixed spirits ready-to-drink (RTD) segment, Smirnoff performed strongly, but not enough to offset declines in Orijin.
Latin America, which contributed 10% of group sales, registered a strong 11% in organic sales, reflecting a strong recovery, though Brazil still remained weak. However, other regions such as Mexico, Andean (Colombia & Venezuela) and Central America and the Caribbean (CCA) put in good performances. Tequila and Rum performed well in Latin America and the Caribbean which offset decline in vodka, especially in Brazil and Mexico.
Asia Pacific, a region that contributed 20% of group revenue returned positive 3% organic sales for the drinks maker, with significant growth coming from Mainland China (44%), buoyed by a strong momentum in Chinese white spirits and an earlier Chinese New Year. Other countries in the region performed equally well with India, South East Asian countries and Australia seeing growths of 4%, 2% and 3% respectively. Diageo noted that Korean whisky market continued to contract with further declines in Travel retail.
On outlook, Diageo said it is confident of achieving its medium-term objective of consistent mid-single digit top line growth and 100 basis points of organic operating margin improvement in the three years ending 30 June 2019.