Diageo PLC on Thursday reported growth in profit in the first half of its financial year, as the foreign exchange woes the alcoholic drinks maker suffered the prior year were reversed by sterling weakness, helping it to beat consensus expectations. The positive report reflects accelerated organic growth and a favorable exchange rate.
Organically, operating profit grew 4.4% after gross margins improved following implementation of cost cuts and the disposal of shares in UB during the period.
The company reported sales growth of 4.4% in its latest earning's report, a better-than-expected result. In Europe, net sales were up 5 per cent with Continental Europe the main contributor.
In contrast, the beer category which accounts for 16% of Diageo's sales, registered a net sales decline of 1% in Africa, impacted by the significant tax increase on bottled beer in Kenya.
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Charles Ireland, general manager for Diageo Great Britain, Ireland and France, said: "Net sales for the six months ended 31 December 2016 were broadly flat, driven by changes in selling patterns across channels resulting from an increase in our commercial footprint". This was driven by strong consumer demand for the core Guinness brand and the continued success of The Brewers' Project initiative, in particular with the continued success of Hop House 13 lager. Reserve brands continued to perform well.
Strong spirits sales in the USA and an improved performance across its scotch portfolio - which includes Bell's, Johnnie Walker and Lagavulin - were among the primary reasons for the solid half.
Guinness owner Diageo has cheered rising profits thanks to a triple tonic from the Brexit-hit pound, robust Scotch sales and a strong USA performance.
"Our productivity work is on track, driving efficiency and effectiveness across the business". Our work on trade and marketing spend gives us better data enabling smarter, quicker decisions that generate higher returns. "We are confident of achieving our medium term objective of consistent mid-single digit top line growth and 100bps of organic operating margin improvement in the three years ending June 30th, 2019".