Diageo hails its first-half results despite worries of potential year-end currency headwinds

Diageo Plc, reported its first-half results on Thursday for period ending 31 December 2017, with the drinks maker recording a 1.7% sales lift to £6.5bn ($9.3bn) from last year’s £6.4bn.

Net profits attributable to the company’s shareholders surged 36% to £2bn, helped by a combined effect of increased marketing spend of 7%, reduction in net finance charges and a broad-based organic growth across all regions

“These results demonstrate continued positive momentum from the consistent and rigorous execution of our strategy.

“Our financial performance expectations for this 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,” said Ivan Menezes, CEO, Diageo Plc.

However, the maker of Johnnie Walker Scotch Whisky warned that the British pounds recent gains against the U.S. dollar and Euro could upend its gains and shave off as much as £460m in net sales in the second-half and £60m in operating profit.

By region, North America saw a 2% sales lift, thanks in part to U.S. spirits which grew 3% in the period. Europe delivered 4% net sales growth, largely driven by Great Britain and Continental Europe, with continued share gains in spirits, particularly gin.

Net sales in Africa grew 2%, with double-digit growth in Nigeria, which partially offset declines in East Africa, Africa Regional Markets and South Africa.

In Nigeria, net sales rose 20%, led by 23% growth in the value beer segment, driven by Dubic Lager. Sales of Guinness Stout grew 14% as it benefited from lapping of a soft performance the prior year and promotional activation of “Be a Front Row Fan” promo. The company’s malt drink, Malta Guinness also performed well, gaining 6% growth in sales, while mainstream spirits surged 22%, driven by innovation launches and new formats.

Sales in East Africa were flat, impacted by uncertainty following Kenya’s presidential elections. Africa Regional Markets saw a 4% sales decline due to challenges in third-party distributor network in Cameroon. While net sales in Ghana grew 9%, largely driven by good performance of Malta Guinness and Guinness Stout, the company experienced declines in its ready-to-drink Orijin brand which faced increased competitive pressure. South Africa declined 2% due to double-digit decline in Smirnoff 1818, which was impacted by price increases and category decline in an increased competitive environment.

Diageo saw its best performance in Latin America and Caribbean and Asia pacific region respectively with both reporting 7% sales growth respectively. Latin America saw strong performance in PUB (Paraguay, Uruguay and Brazil), Mexico and PEBAC (Peru, Ecuador, Bolivia, Argentina and Chile) which offset declines in Colombia, and weakness in export channels.

Asia pacific saw strong growth in Greater china, India, South East Asia, Travel retail and the Middle East.

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