Diageo reports a 1.8% rise in Half-Year (H1) sales

Drinks maker, Diageo Plc and parent company of Guinness Nigeria Plc reported a 1.8% rise in organic sales for half-year (H1) ending on 31, December 2015, slightly better than what analysts were expecting. However, on a reported basis, the company said that sales declined by 5%.

Diageo said its overall performance was hampered by currency weaknesses in several key markets –Euro, Venezuelan Bolivar and the Brazilian real, against the sterling. It noted that the disposal of its wine assets in the first half of 2015 also impacted sales.

The company said that organic operating profit rose by 2.4% but reported operating profit declined for the same reasons.

On a regional basis, sales were down 2% in North America, Diageo’s most important market, as it accounts for a third of all sales. Diageo said the 2% decline was in line with its expectations due partly to a late shipment of a new variant of Ciroc to the market.

The company’s sales grew 3% in Europe, helped by Great Britain and Ireland which saw a 4% and 5% growth respectively in Guinness.

However, the Russian market remained a challenging one. Price increases initiated by the company to offset devaluations led to a volume decline of 12% but net sales grew 20%, spurred by positive brand mix.

Across Africa, sales grew by 3%, with beer accounting for 15% of the overall net sales. Guinness sales in Nigeria grew 28%, mostly from off-trade category. Beer sales also rose in Kenya by 11%.

Diageo’s spirits business did remarkably well in Africa, growing 65% in net sales, particularly Johnnie Walker Blue in Nigeria and Africa regional markets.

In Latin America and the Caribbean, volumes grew by 4% while sales rose 9%. Brazil accounted for 12% of the sales growth due to price increases and a positive shipment phasing, ahead of an increase in duty in December. Other countries that performed well in Latin America were Colombia, with a 24% growth in net sales (due to an introduction of Scotch and new Bailey’s flavours), and Mexico, 20%, driven by Scotch whisky.

Net sales in the Asia Pacific region rose 2%, spurred by a 2% lift in Australia, 6% in South East Asia, 4% in greater China and 6% in India.

In Korea, the company said it is seeing a shift towards lower ABV spirits. This, along with a decline in whisky, contributed to a 6% drop in net sales in that country.

Diageo’s CEO Ivan Menezes, said he is upbeat about the company’s performance, noting that it has become a ‘stronger, more competitive business.’

“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,” Menezes said.

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