Johnnie Walker Red Label

Diageo’s results were affected by weak consumer confidence

Adverse currency movements and weak consumer confidence saw Diageo’s net sales dip 1.3% in the three months to 31 March, it reported this morning.

The spirits giant attributed the trend to the challenging environment, weak consumer confidence and adverse currency movements, which has seen overall sales in the nine months to 31 March flat at 0.3%, while volumes fell 2%.

Western Europe was seeing a slow but consistent improvement, CEO Ivan Menezes said, driving “incremental improvement” of 1.2% in the last three months, and helping boost performance in the nine months to -0.4%.

Emerging markets were hit by low consumer confidence and economic weakness, Diageo said, with performance weak in African and Eastern Europe, despite improvements in Turkey and Nigeria. Net sales also fell in Russia, Kenya and South Africa, it said. 

Asia Pacific saw a 19% decline over the three months, which Diageo blamed in part on political instability in Thailand. Overall net sales in the region were down 9.4% over the nine-month period. But there was stronger growth in South Korea while India, Global Travel Asia [high-end duty free] and the Middle East saw double-digit growth.

A strong comparative performance in Brazil over the quarter helped push sales in Latin America and the Caribbean up 27.7% over the three-month period, offsetting weakness in Mexico and Venezuela, the latter being affected by a new exchange rate.  

Diageo said exchange rate movements meant it was updating its guidance on operating profit to £330m. 

Menezes noted the resilience of North America (up 3.7% in the nine months to 31 March), and the reserve brands across most markets but admitted the environment remained challenging.

“The current emerging market weakness does not reduce our confidence in the long-term growth opportunities of these markets and we have continued to invest to build our brands and routes to consumer for the future,” he said.

Current trends were likely to impact top-line growth over the financial year, he added, and strengthened the company’s determination to deliver operating efficiencies.

“Strong management of our cost base means that we remain committed to the delivery of our margin expansion goals,” he said.