Diageo plc, London, reported interim financial results for the six months ended Dec. 31, 2013. Following 2.2 percent growth in the first quarter, net sales grew 1.8 percent in the first half of the fiscal year, supported by 4.6 percent growth in North America, the company reports. Sales in emerging markets also were up 1.3 percent, but were negatively impacted by weakness in China and Nigeria, and sales in Western Europe were down 1 percent, continuing the improvement trend seen in the first quarter.
Among specific product categories, Diageo’s super- and ultra-premium brands experienced strong growth at 18.5 percent, the company reports. Beer was the only category in its portfolio that experienced a decline — down 2.6 percent — predominantly because of weakness in Nigeria and Ireland, it reports.
Growth in North America’s net sales was driven by price increases, favorable mix in U.S. spirits, and new innovation launches, such as Ciroc Amaretto and Baileys Vanilla Cinnamon, the company says. Reserve brands — which includes Ciroc vodka, some Johnnie Walker Scotch whisky varieties, Ketel One vodka, Tanqueray No. 10 gin, Bulleit bourbon, and Don Julio tequila — grew 26 percent overall, while Guinness, one of the company’s strategic brands, grew 4 percent.
Total marketing investment also was up 2.7 percent in the term, ahead of net sales growth, to 15.6 percent of net sales. Operating profit grew 2.9 percent in the term, with 0.4 points of operating margin improvement, the company says.
"We have continued to demonstrate the strength of our broad portfolio and diverse global business in a period [that] saw a more challenging emerging market environment,” said Chief Executive Officer Ivan Menezes in a statement. “Sustained performance in the United States and improved performance in Western Europe enabled Diageo to absorb the current challenges in some of our emerging markets. We reacted quickly to the changing emerging market environment, reducing inventory levels in several key markets, which led to a weaker [second quarter], and tightly managing our cost base to deliver improved operating margins in line with our expectations. We continued to invest in the business, increasing marketing spend ahead of net sales growth and keeping our strong focus on innovation and route to consumer improvements.
“In the first half, the organization has aligned behind the six key performance drivers, which I identified when I was appointed CEO: premium core brands, reserve, innovation, route to consumer, cost and talent,” he continued. “This clarity of focus at a market level enables me to take the changes I have already made to the operating model to the next level. Over the next two months, we will set out detailed plans to simplify our processes and de-layer our organization. This will create a more agile, accountable and effective organization to deliver our performance ambition. I expect this to deliver cost savings of [more than $330 million] a year by the end of fiscal 2017.
“We do expect some top line improvement in the second half, and our focus across the business on the six key performance drivers means that even though some markets may remain challenging, this business is in good shape for the medium and long term, and we remain committed to achieving our performance ambition,” he concluded.
To read the full financial report, visit the Diageo website.
