DIAGEO has highlighted its Scotch whisky brands as a key driver of growth as its current financial year started well, with one analyst noting that the depreciation of sterling since the Brexit vote has brought a sales boost to the world’s biggest drinks company.
The Johnnie Walker and Guinness maker also hailed “improved top line growth” in the US, its most profitable market, and India ahead of its annual meeting yesterday, declaring that the momentum it built up last year has set it up for a stronger showing this year.
Diageo said it has seen a significant turnaround in its Scotch business, which contributes 25 per cent of its net sales, and expects its whisky brands to perform even better in the current year.
It underlined its improving fortunes across the Atlantic just days after the Scotch Whisky Association (SWA) reported that the value of exports to the US – the industry’s biggest market by far – surged by nine per cent to £375.4 million in the first half of the year.
The company's upbeat assessment on India, which accounts for nearly one-tenth of its sales, was also reflective of the SWA figures, which found that exports to the country grew by 28 per cent to £42.6m in the six months to June.
George Salmon, equity analyst at Hargreaves Lansdown, noted that, after several years of enduring headwinds in emerging markets such as Brazil due to slowing economic growth, Diageo had received a significant boost in export markets because of the collapse in sterling following the Brexit vote.
The pound hit a five-week low against the dollar on Tuesday as the political and economic risks from the UK’s exit from the European Union continued to weight on the currency.
Mr Salmon said Diageo is “now expecting in the region of a 10 to 13 per cent uplift in net sales, just because of the pound weakening, raising the value of their sales.” He said: “If you look at a share price graph you will see a big jump after the Brexit vote.”
Diageo chief executive Ivan Menezes said: “The 2017 fiscal year has started well. As expected, the momentum we created last year, strengthening our business through improved marketing, innovation, and commercial execution, has set us up to deliver a stronger performance.
“Key drivers of improved top line growth are our fiscal 2017 priorities: Scotch, US spirits and India.”
The update from Diageo came hard on the heels of speculation which suggested the drinks giant was preparing to slash jobs across the globe, including at its Park Royal office in London.
Diageo made no comment on that speculation yesterday, but has previously said that it is targeting savings of £500m by a three-year productivity drive unveiled in July 2015.
Mr Salmon said: “They have been driving costs down with efficiency savings and trying to get productivity savings through, and that has been a big part of the focus on the story today.”
Mr Menezes highlighted a “strong start to its productivity work” in Diageo’s current year, stating: “We have made a strong start to our productivity work and are moving at pace.”
He added: “In the second half productivity related costs will decline and be offset by higher savings as well as the benefits from our targeted reinvestment of those gains. “
Shares in Diageo closed up 2.5p at 2,183.5p.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here