28th Jan 2016 11:59
LONDON (Alliance News) - Drinks giant Diageo PLC on Thursday said its pretax profit edged up in the first half thanks to better margins and organic growth, though currency weakness meant revenue dipped despite sales growth remaining fairly robust across its regional operations.
The FTSE 100-listed group, which owns Smirnoff vodka, Jack Daniels bourbon and Guinness stout, said its pretax profit for the half to the end of December was GBP1.78 billion, compared to GBP1.64 billion a year earlier. Revenue dipped to GBP8.27 billion from GBP8.73 billion in the half, with currency holding back growth and challenging conditions continuing in certain markets, particularly emerging markets.
Organic net sales growth in the half, however, was 1.8%, with volume growth of 1.0% overall, while the group's organic operating margins improved thanks to cost improvements in the business and a good performance from its key brands. The organic net sales numbers strip out currency and acquisition effects.
Diageo said it will pay a dividend for the half of 22.6 pence, up 5.0% year-on-year.
The stock was down 1.3% at 1,842.50 pence Thursday.
"For the full year we expect volume growth to drive stronger top line performance, margin to slightly improve and strong cash conversion to continue," said Chief Executive Ivan Menezes. He added this will set the group up to deliver better growth in its 2017 financial year, with productivity improvements to support margin expansion and further investments in growth plans.
In North America, Diageo said most of its key brands did well in the first half, though Ciroc vodka sales suffered due to a shift in the group's replenishment model for new launches. Otherwise, Smirnoff performed well, as did Captain Morgan rum, while its Johnnie Walker, Bulleit and Don Julio whiskeys all saw sales grow.
Diageo said the trading environment in Europe remained challenging in the first half, though it performed well in the UK and France as it won market share. Guinness proved a strong performer in the UK and Ireland, driven by its Brewers Project campaign, designed to better align the drink with the more quality-conscious craft brew drinkers.
Guinness also was the star performer in Africa, where it remains extremely popular in Nigeria market, though beer sales in South Africa and Angola declined amid tough economic conditions in both countries. Scotch demand was weaker in the region, but this was offset by good sales for vodka and rum brands in East Africa and South Africa.
Latin America and Caribbean sales were dragged down on a reported basis by weak currencies, though the overall performance for Diageo's brands was robust in the region. Net sales in Mexico and Colombia, in particular, performed well, with good growth for new flavours of Bailey's Irish cream.
Asia Pacific trading improved, Diageo said, with net sales growth in Australia, South East Asia, China and India, but the group saw some weakness in the Korean market and struggled in its travel sales and in the Middle East.
On a product basis, organic net sales revenue increased across the board. The star performers for the group were Bailey's, driven by growth in the UK and the US and helped by the launch of new flavours for the brand, and Tanqueray gin, which delivered growth across regions, helped by sales of its Tanqueray No. TEN premium variant.
Guinness also performed well, with net sales rising thanks to a very strong performance in Nigeria and in Kenya, plus solid growth in the UK and Ireland.
By Sam Unsted; [email protected]; @SamUAtAlliance
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