Diageo announces 1.8% sales growth

28 January, 2016

Diageo has announced 1.8% organic net sales growth, on 1.0% organic volume growth and 2.4% organic operating profit growth.

It reports reduced net sales by £400 million and operating profit (before exceptional items) by £156m to £5,606m and £1,717m, respectively due to adverse exchange and the impact of the disposal of non core assets.

Diageo Chief executive Ivan Menezes, said: “Diageo has become a stronger, more competitive business. 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.

“For the full year we expect volume growth to drive stronger top line performance, margin to slightly improve and strong cash conversion to continue. We remain confident of achieving our objective of mid-single digit top line growth,” said Menezes.

Reported net sales declined primarily as a result of the adverse impact of exchange and the disposals of non core assets. Organic net sales growth was 1.8% with volume growth and positive price/mix.

The report says later timing of innovations and new processes for innovation launches in the US led to a decline in net sales of Cîroc which reduced Diageo net sales growth and impacted performance of Diageo North America.

The report goes on to state: “Reported net sales and operating profit were impacted by adverse exchange movements driven by the weakness of many currencies against sterling, in particular the euro, the Venezuelan bolivar and the Brazilian real partially offset by the strengthening of the US dollar.”

It says: “Using current exchange rates (£1 = $1.45; £1 = €1.33), the exchange rate movement for the year ending June 30, 2016 is estimated to adversely impact net sales by approximately £260m and operating profit by approximately £85m.”

Acquisitions made in the year ended June 30, 2015 increased net sales in the first half by £52m and operating profit by £21m, largely due to the acquisition of the remaining 50% shareholdings in Don Julio and United National Breweries.

Disposals, primarily the sale of Bushmills and Gleneagles in the year ended June 30, 2015 and the sale of wines in the US and Percy Fox in the UK and beer assets in Jamaica and Asia in the year ending June 30, 2016 contributed net sales of £332m and operating profit of £74m in the six months ended December 31, 2014 and net sales of £171m and operating profit of £17m in the six months ended December 31, 2015, the report on interim results states.

Diageo has disposed of the majority of its wine interests in the US and the UK and is expected to complete the sale of its Argentinian wine interests in the second half of the year. In the six months ended December 31, 2015 net sales of wine were £189m (2014 - £231m) and operating profit was £19m (2014- £43m).

Keywords: diageo




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