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Diageo turns a corner with positive half-year results

Published:  28 January, 2016

Diageo posted a 1.8% organic rise in sales for the six months to December 31, 2015, according the figures released by the company today.

Volumes were likewise up 1%, the drinks group reported.

However, the impact of both currency fluctuations and the disposal of the greater part of its wine business meant that sales and profits were down in real terms by £400 million and £156 million respectively.

Sales increased in every region globally except for North America, Diageo's most important market, which contracted by 2%.

North America accounts for some 34% of Diageo's turnover, but the global drinks giant said the decline in sales was in line with expectation.

The company is in the process of adjusting its shipping model in the region, moving to a more responsive and agile system.

Finance director Deirdre Mahlan was promoted to head up Diageo's US business last year following several years of disappointing results.

Some 45% of Diageo's sales worldwide come from just six brands: Johnny Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray and Guinness.

Guinness has returned to growth with a bang, up 9% globally.

Sales of Baileys were up 6% globally and a whopping 14% in the UK on the back of a raised media profile and a range of promotions through the festive season.

Sales of Captain Morgan rose 3% and sales of Smirnoff 2%.

Scotch represents 25% of Diageo's overall sales, and the category returned to growth in this half, albeit at a modest 1%.

However the vodka category as a whole, which accounts for 12% of Diageo's turnover, contracted by 8% year on year.

Ivan Menezes, Diageo chief executive, said: "We have delivered volume growth, a stronger top line, improved the performance of our key brands, driven cost productivity and continued to generate strong cash flow.

"While trading conditions remain challenging in some markets, Diageo's brands, capabilities in marketing and innovation and our route to consumer have proved resilient.

"I am confident that Diageo can deliver improved, sustained performance."

Connor Campbell, a senior market analyst at www.spreadex.com, said: "Despite surprising analysts with a better than expected set of sales figures (boosted by a comeback in Europe), investors weren't particularly taken with Diageo this Thursday.

"A 2% rise in both earnings and European sales arguably should have marked an improvement in the company's current price; instead the stock started the day rather limply, hovering around the £18.60 mark."

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