Diageo Reports 3% Organic Net Sales Growth

18 Oct 2013 --- In the three months ended 30 September 2013 Diageo delivered 3.1% organic net sales growth with volume up 0.6%. Reported net sales were flat for the quarter mainly reflecting the termination of the distribution agreement for Jose Cuervo.

Diageo’s North America business continues to deliver good growth. Consumer trends are broadly unchanged from the prior year and the US spirits business remains the key driver of performance for Diageo North America. Strong performance from Cîroc, Crown Royal and Ketel One vodka again contributed to mix improvement. Underlying trends in Western Europe remain unchanged from those seen in the final quarter of the prior year, however performance in the quarter did benefit from some restocking in France. Performance in the Africa, Eastern Europe and Turkey region was impacted by a decline in net sales in Russia in comparison to a very strong first quarter in the prior year. Africa reported 5.0% net sales growth in the quarter following weaker trading in Nigeria and Ghana, although both markets are expected to strengthen during the year. Performance in Latin America and Caribbean moderated in the quarter. Colombia was weaker, and currency weakness led to destocking in the distributor channel in West LAC. Government policies in China have led to a substantial fall in net sales in Diageo’s Chinese white spirit subsidiary. Performance in Asia Pacific was also affected by currency related distributor destocking in the region, especially in South East Asia. Therefore despite improvement in Korea, improved performance in Diageo India and continued strong growth of our super and ultra-premium scotch brands in China the performance in Asia Pacific slowed.

At 30 September 2013, net assets were £7,371 million (£8,088 million at 30 June 2013) and net borrowings were £9,066 million (£8,403 million at 30 June 2013). In the quarter Diageo acquired an additional 14.98% equity stake in United Spirits Limited for £342 million which resulted in an exceptional gain of £140 million which was recognised in the period.

Using current exchange rates, (£1 = $1.60 ; £1 = €1.18), exchange rate movements for the year ending 30 June 2014 are expected to adversely impact operating profit by £165 million and decrease finance charges by £5 million. This guidance excludes the impact of IAS 21 and 39.

Ivan Menezes, Chief Executive of Diageo commented: ‘Our performance in the quarter was good given weakness in some markets. The strength of our biggest business, US spirits, underpinned our performance. Our business in Western Europe performed in line with the slightly improving trends we saw in Q4 of F13, although I still expect a low single digit net sales decline for the full year. While there are headwinds in some emerging markets, including the impact of the government policies in China, there are also markets in which we continue to deliver robust growth and Diageo’s strength is the diversity of our geographic breadth and broad category reach. We continue to make this strong business stronger and we remain committed to delivery of our medium term guidance.’