Few people would argue that banning the sale of alcohol near highways is a bad idea. Diageo (DGE) doesn’t disagree with the legislation that came into effect in India last year, but management must be a bit disappointed. Chief executive Ivan Menezes previously warned that the decision would slow first-half sales growth this year – a tad disappointing as India is considered a crucial market for the spirits maker. As these numbers showed, net sales in India grew just 2 per cent, while volumes fell 3 per cent.
Mr Menezes also said a later Chinese New Year would have a similarly negative impact on sales in that region. But even if it did, organic net sales in Greater China still improved by a third, as did volumes. Cheers to that.
Another area of focus cited by Mr Menezes is US spirits, and scotch in particular. Sales of spirits in the US increased by 3 per cent, while whisky sales rose 4 per cent. The company is building its scotch inventory in anticipation of 2 to 3 per cent volume growth over the long term. Scotch is less risky to produce than liquors such as cognac since barley is readily available. Sales and volumes of all Diageos's biggest spirits brands grew apart from vodka, including brands such as Cîroc and Keetel One. Diageo has cut the prices on these brands by around 6 per cent in the hope of giving sales a boost by the end of the year.
Unsurprisingly, the UK still loves its gin. Net sales growth in Europe was primarily driven by brands such as Tanqueray and Gordon’s in the UK, especially the launch of the latter’s pink variant.
Overall, group sales growth of 4.2 per cent beat analysts’ expectations, while Mr Menezes still expects to deliver on the promise of consistent mid-single-digit top-line growth and 175 basis points of organic operating margin improvement over the three years to June 2019
Analysts at Liberum expect EPS of 113p in the year to June, compared with 109p in FY2017.
| DIAGEO (DGE) | ||||
| ORD PRICE: | 2,562p | MARKET VALUE: | £63.6bn | |
| TOUCH: | 2,562-2,563p | 12-MONTH HIGH: | 2,736p | LOW: 2,141p |
| DIVIDEND YIELD: | 2.5% | PE RATIO: | 20 | |
| NET ASSET VALUE: | 400p* | NET DEBT: | 77% | |
| Half-year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2016 | 9.62 | 2.07 | 62.5 | 23.7 |
| 2017 | 9.93 | 2.20 | 82.2 | 24.9 |
| % change | +3 | +6 | +32 | +5 |
| Ex-div: | 22 Feb | |||
| Payment: | 6 Apr | |||
| *Includes intangible assets of £12.8bn, or 516p a share | ||||
