Diageo to reallocate marketing spend to underinvested brands to drive 'future profit'

Strong Scotch whiskey sales helped to drive overall growth

The company reported a 28 percent rise in operating profit for the first half of its fiscal year on Thursday morning and a hike in its dividend. The positive report reflects accelerated organic growth and a favorable exchange rate.

Operating profit, which excludes exceptional items, in the half year increased to GBP2.07 billion from GBP1.72 billion, boosted by a 339 basis points improvement in operating margin. In Europe, net sales were up 5 per cent with Continental Europe the main contributor.

Menezes also said that while Smirnoff was Diageo's only "Global Giant" brand to decline in H1 - impacted by price hikes in the USA - he expects the vodka to return to growth "over the next few quarters".

North America delivered net sales growth of 3 percent, while USA spirits net sales were up by 4 percent.

Spirits giant Diageo has reported a better than expected rise in sales helped by improvements in its United States business and its Scotch portfolio. Good sales of white spirits and scotch in Asia Pacific offset the continued contraction of the local whiskey market in Korea. Growth was driven by reserve variants, which were up by 11%.

Guinness net sales were up 2 per cent supported by a solid performance of Hop House 13 Lager and Tanqueray, which grew net sales double digit in most countries across Europe.

Diageo's Scotch brands account for more than 25% of the company's sales and grew 6% during the six-month period, an improvement over the previous year's 1% sales gain of its Scotch portfolio.

Ivan Menezes, who has faced persistent questions over his tenure as chief executive, said the hard work of the past three years was turning Diageo into a "stronger, more consistent, better-performing company" that was quicker on its feet and able to generate higher returns.

Menezes said: "We are identifying consumer trends faster, expanding the reach of our products across markets and developing trade channels to capture these growth opportunities".

"Our productivity work is on track, driving efficiency and effectiveness across the business".

"Our expectations of delivering a stronger financial performance this year are unchanged".

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