Diageo sales and profit growth held in by strong pound

● Boss says distiller still set to hit revenue and profit margin targets to June 2019

Diageo, Scotland’s largest whisky company, stayed in high spirits to shrug off cur‑ rency headwinds and deliv‑ er a 6 per cent lift in profits to £2.2 billion in the six months to end December.

However, the distiller gave warning of a £60 million knock to operating profit and a £460m hit to sales for the full year, owing to the rise of sterling against the dollar in recent months.

That compares with a pre‑ vious expectation of a much lower £80m impact on group sales and an actual £70m boost to earnings.

The interim profits rise was on the back of a 1.7 per cent rise in Diageo’s revenues to £6.5bn, with robust demand for Gor‑ don’s pink gin, Guinness and Ciroc French Vanilla vodka.

Ivan Menezes, chief execu‑ tive of Diageo, whose whiskies include Johnnie Walker and J&B, hailed the latest results as showing “positive momentum from the consistent and rigor‑ ous execution of our strategy”.

Menezes said this includ‑ ed “better consumer insight through superior analyt‑ ics”, adding that perform‑ ance expectations for the full financial year remained unchanged.

“We are confident in our abil‑ ity to deliver consistent mid‑ single digit top line [revenue] growth and 175 basis points of operating margin improve‑ ment in the three years [to] 30 June, 2019,” he added.

Diageo upped its dividend 5 per cent to 24.9p, while the shares edged down 5.5p to close at 2,537p on closer exam‑ ination of the currency head‑ winds after having earlier ris‑ en 21.5p.

The rise in revenues was helped by a 7 per cent boost in marketing spend behind the brands in the period, particu‑ larly in the key US market.

Analysts said Diageo, like rivals Pernod Ricard and Brown‑foreman, had bene‑ fited in the past two years or so from the returning popular‑ ity of cocktails, as spirits gain market share from beer.

Menezes said the compa‑ ny had also ramped up its “everyday efficiency” drive to help ward off any market headwinds and deliver on its strategic priorities.

Cashflow continued to be strong, with net cash from operating activities at £1.2bn and free cashflow at £1bn.

Nicholas Hyett, equity ana‑ lyst at stockbroker Hargreaves Lansdown, commented: “Dia‑ geo is delivering pretty much exactly as it had promised – mid‑single‑digit top‑line growth with cost savings boosting the profit perform‑ ance.

“It helps that the group is enjoying some fairly benign economic conditions, since sales of its premium spirits tend to reflect trends in global growth.

“Tequila continues to enjoy runaway success – although coming from a low base, spec‑ tacular 37 per cent volume growth should be taken with a pinch of salt.”

Phil Carroll, drinks analyst at Shore Capital, said: “Overall, a reassuring performance from Diageo with strong numbers delivered despite a number of market challenges.”