Diageo posts 5.8% net sales rise as gin brands help drive growth

Diageo continues to profit from the global surge in the popularity of gin, as it recorded a 5.8% rise in half-year net sales.

For the six months to 31 December 2018, the alcohol company posted net sales of £6.91 billion. Operating profit surged by 11% to reach £2.43 billion.

Once again, Diageo’s gin and tequila brands – including Gordon’s, Tanqueray, Don Julio and Casamigos – were star performers; gin sales were up 28% while tequila grew 29%.

Following a dip last year, vodka, which represents 11% of Diageo’s business, returned to growth with net sales up 3%, driven by Smirnoff and Ketel One.

In North America, the company’s largest area, net sales rose 6%, in part thanks to the positive impact of the disposal of 19 brands to Sazerac.

In the US, Johnnie Walker grew thanks to the successful launch of White Walker by Johnnie Walker, inspired by the TV series Game of Thrones. Last month, Diageo revealed plans to build a $130 million distilled spirits manufacturing facility in Kentucky, to support its growth ambition in the bourbon and American whiskey categories.

Diageo CEO Ivan Menezes.

In its Europe and Turkey segment, revenues were up 5%, thanks to gin and beer growth. However, the firm’s Scotch portfolio struggled, in part due to the poor performance of J&B Whisky.

Diageo CEO Ivan Menezes said: “Diageo delivered broad-based volume and organic net sales growth across regions and categories. We continue to expand organic operating margins while increasing investment in our brands ahead of organic net sales growth.

“These results are further evidence of the changes we have made in Diageo to put the consumer at the heart of our business, to embed productivity and to act with agility to enable us to win sustainably.

“At £1.3 billion, we delivered another period of strong free cash flow. As a result, the board approved an incremental share buyback of £660 million, bringing the total programme up to £3 billion for the year ending 30 June 2019.

“This half has benefitted from some one-time and phasing gains in both organic net sales and operating profit, and therefore we continue to expect to deliver mid-single digit organic net sales growth for the year and to expand operating margins in line with our previous guidance of 175 bps for the three years ending 30 June 2019.

“As we deploy our strategy, we remain focused on building the long-term health of our brands and ensuring we grow our business in a consistent and sustainable way.”