30th Jul 2015 12:12
LONDON (Alliance News) - Diageo PLC Thursday reported a rise in profit in its recently-ended financial year, although net sales were hit by currency headwinds, but it increased its dividend beyond expectations saying it will deliver an improved top-line performance in the new financial year.
Shares in Diageo were trading down 1.1% at 1,820.00 pence Thursday afternoon.
The FTSE 100-listed drinks giant reported a pretax profit in the year ended June 30 of GBP2.93 billion, up from the GBP2.71 billion it reported the year before, as revenue grew to GBP16 billion from GBP14 billion.
Net sales grew to GBP10.81 billion from GBP10.26 billion, which was in line with analyst forecasts. Back in April, Diageo had warned that that lower inflation and weak economies would lead to "subdued net sales growth" in the full year.
Acquisitions added GBP949 million of net sales in the year, Diageo said on Thursday, principally from United Spirits Ltd and Don Julio. However, net sales were still hit by currency weaknesses, it said.
Geographically, Africa continued to perform strongly, with organic net sales up 6%, while North America declined 1% , Latin America and the Caribbean declined 1%, and Asia Pacific fell 2%. However, on a reported basis, net sales decreased by 1% in Africa, by 7% in Europe, and by 10% in Latin America and the Caribbean, but grew by 64% in Asia Pacific.
Diageo has suffered a tough couple of years, achieving only flat top-line growth, but Chief Financial Officer Deirdre Mahlan told journalists Thursday that she sees the financial year 2016 as being a "transition year", as the underlying business is seeing improving trends.
The company added that productivity gains will release GBP500 million to invest in growth and improve margin over three years from the financial year 2017, with no exceptional charges required to deliver those gains.
Diageo will pay a total dividend of 56.4 pence for the year, an increase of 9.1% on the 51.7p it paid the year before, which is higher than analysts had expected.
"We are delivering the change which will further strengthen this business and deliver our performance ambition. In 2016 we believe stronger volume growth will deliver an improved top-line performance," Chief Executive Ivan Menezes said in a statement.
"As we achieve our productivity gains from 2017 we expect to deliver mid single digit organic top line growth on a sustained basis and operating margin expansion of 100 basis points over three years. Our brands, our global footprint and our people give me confidence that Diageo can deliver a strong and sustained performance," Menezes said.
Analysts agreed that Diageo's results were slightly weak, but said this was expected, and acknowledged that change is occurring for the better. Citi said that while the results were "soft" and marginally below its expectations, it sees positives in the new cost-savings programme, the medium-term guidance and the better-than-expected dividend.
"Change is unquestionably happening at Diageo, in our view, and with the help of an improvement in the external environment, we expect a better performance in 2016 and expect the stock to re-rate," Citi said.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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