Profits have poured in at Diageo, the Johnny Walker, Smirnoff and Guinness giant, in its financial year to the end of June – up 8% before tax to £2.9bn. The gains were mostly thanks to the full consolidation of United Spirits last year.
Overall net sales came in 5% higher at £10.8bn, up from £10.3bn the previous year, while net sales in Great Britain rose 3%, with spirits, beer and ready-to-drink all in growth. However, on an organic basis, net sales were flat, while organic volumes declined by 1% as Diageo’s struggles in emerging markets continued for a third year.
Captain Morgan net sales jumped 15% and Smirnoff returned to growth with net sales up 1%. Innovation on Guinness helped drive net sales of the brand 2% higher.
Ready-to-drink net sales climbed 7% supported by strong growth in pre-mixes. Baileys showed the only weakness, the company said, with net sales down 2%.
Diageo referred to this week’s news that the Securities and Exchange Commission was investigating its distribution practices in the US. Diageo said in its results statement that it was unable to assess what the upshot of this would be.
Diageo’s results statement further said that productivity gains would release a further £500m of cost to invest in growth and improve margin over a three-year period from the 2017 financial year.
CEO Ivan Menezes added the group had made further changes to build “strong, sustained performance”, including strengthening its “route to consumer”.
“Our 2015 performance reflects the challenges we have seen on top-line growth. However, it does not diminish my confidence in what we can achieve in 2016 and even more so beyond that.”
He said the company had consistently taken a long-term view despite short-term challenges “faced from an external environment where currency volatility continues to impact the emerging market consumer”.
Diageo’s control of United Spirits during the year, gave it access to one of the world’s most attractive spirits markets, Menezes added.
“We have enhanced our position in tequila by acquiring the remaining 50% of Don Julio, a brand that is already growing net sales double digit and for which I see significant potential now we have full control.”
Diageo also sold Gleneagles during the year, and, since the year end, had sold the shares United Spirits owned in United Breweries and restructured its South African operations to focus on spirits and monetise investments worth £125m.
“We are delivering the change which will further strengthen this business and deliver our performance ambition,” said Menezes. “Our brands, our global footprint and our people give me confidence that Diageo can deliver strong and sustained performance.”
The results come hard on the heels of this week’s news that the business is dissolving its joint ventures in South Africa with Heineken and Namibian company Ohlthaver & List.