Diageo reports net sales decline of 0.3%

16 April, 2015

Diageo, the world’s largest premium drinks company, has announced its interim management statement for the nine months ended March 31, 2015.

It reports net sales down 0.3% on an organic basis and were down 0.7% in the quarter, with volume down 1.7% in the nine month period and 0.8% in the quarter.

But net sales grew 4.6%. Acquisitions, principally United Spirits Limited, contributed £700 million partially offset by an adverse impact of currency movements of £298 million and a reduction of £28 million due to disposals, says the company.

The company reports: “The success of Crown Royal Regal Apple was the biggest driver of increased shipments in US Spirits & Wines and therefore of the improved performance in the quarter in North America.  Smirnoff Red’s performance continues to improve although it was offset by the weakness of Captain Morgan.  In the quarter, DGUSA’s (Diageo-Guinness USA) shipments were weaker than in the first half due to phasing of shipments.  Depletion trends have continued to improve during the quarter across both US spirits and DGUSA.

“In Europe, following a broadly flat performance in the first half, the performance in the quarter saw a high single digit net sales decline in Great Britain reflecting the comparison against last year when a buy up ahead of an expected duty increase brought forward sales into the third quarter.

“Africa, as expected delivered a stronger performance in the quarter. In Africa Regional Markets and East Africa, net sales continued to grow double digit.  Improved performance in the quarter in Nigeria, with the success of Orijin (a 6% abv alcoholic blend with the flavours of African herbs and fruit) and a steady improvement in Guinness’ performance, delivered double digit growth.  In South Africa in the quarter, net sales of spirits grew 4% despite the weak economy; however total net sales were down as a result of the transfer of production of Smirnoff Ice Double Black & Guarana (energy drink) to Diageo’s DHN (Diageo Heineken and Namibia) joint venture.

“In Latin America and Caribbean, while there was a good performance in most domestic markets, currency volatility continues to negatively impact consumer demand and the inventory levels held by customers in some channels.  The quarter was also specifically impacted by phasing issues which will benefit performance in the fourth quarter.

“Asia Pacific performance in the quarter was broadly in line with the first half as net sales in South East Asia continued to be impacted by the decision to reduce inventory levels held by distributors. In addition, regulatory changes to the sale of beer in the off trade are to be introduced in Indonesia and this impacted performance in the quarter. In the Middle East, political tensions and Diageo’s decision to hold prices resulted in a decline in net sales in the quarter. In mainland China, net sales grew 13%, driven by the recovery of Diageo’s baijiu business," the report states.

Diageo chief executive Ivan Menezes said: “Our performance in the quarter reflects continued tough conditions in the emerging markets and subdued consumer demand in some developed markets. However it also reflects the actions we have taken to ensure we are building a stronger business. Of key importance is that depletions continue to outpace shipments as we embed our sell out culture. In addition, our decision to de-stock some wholesale channels in South East Asia and West LAC (Latin America & Caribbean) will improve our ability to track consumer and customer trends and reduce future volatility.

“Our route to consumer focus, momentum in reserve and successful innovations have each contributed to building a stronger business although lower inflation and weak economies will lead to subdued net sales growth in the current year despite these improvements.

“Consumers in North America remain the most resilient and while lower gas prices and a more favourable macro outlook have not led to a significant shift, growth in the spirits category is improving and our depletion performance continues to build momentum, although I do not expect to see shipments improve until we have lapped last year.

“We will continue to strengthen Diageo. We are investing in our brands, enhancing our route to consumer, introducing great innovations such as Crown Royal Regal Apple and Orijin, winning in reserve and focusing on cost and cash.  We can realise Diageo’s full potential and deliver our performance ambition,” said Menezes.

Keywords: diageo

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