Liquor holding Diageo, best known for its Johnnie Walker, Smirnoff and Gordon’s brands, has achieved a 4.2 % turnover increase in the past six months. However, the exchange rates impacted the British company, nullifying much of its growth.
Punished by stronger British pound
In 2017’s last six months, which were the first six months of Diageo's fiscal year, the company's turnover grew 4.2 %. That was slightly more than what analysts had expected (+ 3.7 %) from the world’s largest liquor group. Nevertheless, 134 million dollars evaporated through exchange rate fluctuations and that is why the net sales only grew from 6.42 billion dollars to 6.53 billion dollars (5.2 billion euro).
The improved British pound (compared to the weakening dollar) proved detrimental to the liquor holding. Historically, Diageo generates most of its turnover and profit on the American market and in the end, its turnover growth (+ 1.7 % net turnover growth) pretty much equaled its volume growth (+ 1.8 %). Turnover from price increases (149 million dollar – 110 million euro) was lost because of this, but Diageo chooses to focus on the “consistent positive momentum”, CEO Ivan Menezes said.
Whisky leads, vodka trails
“We have increased investment behind our brands and expanded organic operating margin through our sustained focus on driving efficiency and effectiveness across the business”, Menezes added. The company's operational margin grew from 32.2 to 33.5 %.
In the six months leading up to the end of December, Diageo achieved a 2.19 billion dollar (1.75 billion euro) operational profit, up 6.1 % compared to the year before. The company invested an additional 7 % in marketing, mainly to help boost its American whisky and vodka sales. The region’s 2 % organic turnover slump was disappointing, especially since Europe and Turkey advanced 4 %. Latin America and Asia-Pacific performed best however, with a 7 % organic growth each.
Scottish whisky, Diageo’s most important category, sold 3 % more worldwide, while vodka suffered and published a 6 % turnover decrease. For its full fiscal year, which will end in June 2018, the company will not alter its forecast, CEO Menezes said.