Organic net sales grew by 1.8% in the six months ending December 31, 2015. However, reported net sales declined 5% as a result of the adverse impact of exchange, and disposal of its non-core assets.
Organic operating profit grew 2.4%, but reported operating profit declined for the same reasons.
“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,” said Menezes.
Diageo’s flagship brands include Guinness, Bailey’s, Smirnoff and Johnnie Walker. In recent months, Diageo has been offloading its major wine interests, a move it says will allow it to focus on its main portfolio with wine ‘no longer core’ to the company.
The sale of the majority of its wine interests in the US and UK (Chateau and Estate wines in the US and Percy Fox in the UK) to Treasury Wine Estates was completed on January 1 this year.
Diageo has also agreed the sale of its wine interests in Argentina to Grupo Peñaflor, who will also distribute spirits brands in the country.
North America is Diageo’s most important market, accounting for a third of all Diageo sales. The company says a 2% fall in net sales is in line with its expectations (given its move away from shipping large quantities of new products to a demand driven model).
Meanwhile, Smirnoff has returned to growth (net sales up 4%) with increased activation behind electronic dance music in its campaigns; although the brand still underperforms vodka category growth.
Captain Morgan’s performance also improved with a 1% increase in net sales, which Diageo champions as outperforming a declining rum category. Its sales were boosted by the launch of Cannon Blast and popularity of Original Spiced Rum.
Bulleit bourbon and Don Julio tequila were high points for Diageo in North America, with net sales growth of 27% and 28% respectively.
Europe, Russia and Turkey
Guinness performed well in Great Britain and Ireland, with net sales up 4% and 5% respectively. Successful launches from The Brewers Project, a Guinness initiative at St James’s Gate brewery in Dublin, helped drive this growth.
In Russia the trading environment remains challenging, said Diageo. Price increases to offset devaluation led to a volume decline of 12%, however, net sales grew 20% driven by positive brand mix.
Overall, the Europe, Russia and Turkey region saw net sales grow 3%.
Africa currently accounts for 13% of Diageo’s net sales, but has been earmarked as a key market for the future (Menezes wants to see the region account for 20% of sales).
Beer net sales grew 15%. In particular, Guinness sales were up 28% in Nigeria, thanks to success in the growing off trade category, and up 11% in Kenya on the back of marketing campaigns.
Reserve brands have grown net sales 65% in Africa, driven in particular by Johnnie Walker Blue performance in Nigeria and Africa regional markets.
Across Africa, net sales grew by 3%.
Latin America and Caribbean
Volumes were up 4% and net sales grew 9% in the region.
Against difficult market conditions, Diageo highlights a rise in net sales of 12% in Brazil, reflecting price increases and positive shipment phasing ahead of an increase in duty in December.
Scotch net sales in the region grew 9% driven by strong Johnnie Walker Red performances in Mexico and Brazil, and Buchanan’s in Mexico and Colombia, driven by revamped marketing campaigns, price increases and growth in reserve scotch brands.
In Colombia net sales were up 24% (thanks to scotch and new Bailey’s flavors); in Mexico net sales were up 20% (also driven by scotch).
Net sales in Asia Pacific were up 2%. Growth was seen in Australia (2%), South East Asia (6%), Greater China (4%), and India (6%).
However, the Global Travel Asia and Middle East sector saw a fall of 12%. “Geopolitical developments led to softness in the domestic and travel retail business in the Middle East,” says Diageo. “In Global Travel Asia net sales declined 4% impacted by softness in China and South East Asia.”
In Korea, Diageo says it is seeing a shift to lower ABV spirits. This, along with decline in whisky, led to a fall in net sales of 6%. However, beer continued to grow.
In response to the lower ABV trend, Diageo launched W Ice by Windsor in March and K Rare by Windsor in November last year. “Initial results show the brands are being well received both by customers and consumers,” says Diageo.