Diageo plays down tariff impact but Scotch sales soften

● Solid growth in single malts portfolio offset by flat sales of blended products

Johnnie Walker owner Diageo has reported a “softening to flat” performance for its Scotch division and warned that it is not immune to “ongoing uncertainty in the global trade environment”.

Reporting its latest interim results, the spirits and beer giant said its single malts portfolio, Buchanan’s and Johnnie Walker reserve grew in the period but was offset by Johnnie Walker Black Label and Johnnie Walker Red Label which softened globally.

This was driven by challenging trading conditions in Mexico, volatility in the travel retail market and the Middle East, as well as political and economic disruptions in Peru and Chile.

During the six months to the end of December, Buchanan’s grew 9 per cent in both North America and Latin America and Caribbean. Scotch malts were up 17 per cent with broad based double-digit growth across all regions.

However, the group’s primary Scotch brands remained flat largely as growth of Black & White and VAT 69 was offset by declines of Haig in Greece and Bell’s in Britain. Scotch continued to decline in Korea, the firm added.

Scotch represents just over a quarter of Diageo’s net sales.

The group, which has a vast portfolio including the likes of Gordon’s gin, Captain Morgan rum and Guinness stout, warned that full-year sales were expected to be at the lower end of forecasts as it was affected by volatility in global markets.

However, the London-listed firm hailed a “good” half-year’s trading performance overall as it said net sales increased by 4.2 per cent to £7.2 million for the six-month period.

It added that operating profit nudged up 0.5 per cent to £2.4bn as organic growth was offset by unfavourable exchange rates.

In October, the US government introduced 25 per cent tariffs on single malt whiskies but Diageo said this move had not had a significant impact on its trading performance. The group said it expects net sales growth for the full year to be towards the lower end of its forecast range, of between 4 per cent and 6 per cent growth.

Chief executive Ivan Menezes said: “Diageo has delivered another good, consistent set of results in the first half, with broad-based organic net sales growth across regions and categories. We have continued to increase investment behind marketing and growth initiatives, while expanding organic operating margins.

“There is ongoing uncertainty in the global trade environment and we would not be immune from further policy changes.”

Ewan Andrew, president of global supply chain and procurement, said the group benefited from a “broad-based portfolio” and pointed to the high volumes of blended Scotch, such as Johnnie Walker, sold into the US market – unaffected by the tariff.

He highlighted investment in the Scotch whisky business, including the Johnnie Walker Whisky Experience on Edinburgh’s Princes Street, whose opening remains “on track”.