Diageo’s Profits Hit by Currency Movements and Disposals

28 Jan 2016 --- Diageo, the drinks giant behind Guinness, has reported a nudging up of year-on-year pre-tax profits from £1.64bn ($2.3bn) to £1.78bn ($2.5bn) in the six months to December 31 but its sales and operating profits were hit by adverse exchange movements.

Organic net sales grew 1.8 per cent in the period, which was slightly ahead of analyst expectations, but overall sales fell from £8.7bn ($12.4) to £8.3bn ($11.8bn) in the period.

Operating profit was down by £156m ($222) which was mainly down to adverse currency movements, including the declining value of the Euro against the pound, as well as taking a financial hit on disposals.

Diageo chief executive Ivan Menezes has previously warned that sales in the key US market, where it has sold off its wine business, would be down in the period.

Asia Pacific was a strong performer for Diageo, with operating profit up 18 per cent to £36m ($51.3m), ahead of Latin America and the Caribbean, where operating profit was up 5 per cent to £7m ($10m)
In the important US market, operating profit was down 2 per cent to record a loss of £19m ($27.1m).

Diageo, whose brands also include vodka brand Smirnoff and whisky brand Johnnie Walker, has been trying to expand in emerging markets, as well as selling off businesses to make the business more agile.

Along with offloading its US wine business, it has sold of it Jamaican brewing business and assets in Scotland.

Menezes said: “Diageo has become a stronger, more competitive business. We have delivered volume growth, a stronger top line, improved the performance of our key brands, driven cost productivity and continued to generate strong cash flow.

“While trading conditions remain challenging in some markets, Diageo’s brands, capabilities in marketing and innovation and our route to consumer have proved resilient. I am confident that Diageo can deliver improved, sustained performance.”

By John Reynolds