Guinness parent Diageo reports lower revenue growth

Diageo saw organic net sales fall by 1.5 per cent in its first fiscal quarter but said it was confident of improved full-year top line growth.

In an interim management statement published on Thursday, the world’s biggest distiller attributed the decline in sales to a weak performance in emerging markets, as well as currency devaluations.

In the three months to September 30th, Diageo said sales volumes fell 3.5 per cent, in line with its expectations.

Net assets rose by £0.8 billion to £8.4 billion, over the quarter, the group said. Net borrowings increased by £1.9 billion to £10.8 billion for the same period.

Sales fell 7.4 per cent in Asia, but a decline in organic net sales in mainland China moderated to around 20 per cent during the quarter, the group said.

Overall, the performance was strong in Diageo’s Africa Regional Markets and East Africa was described as good, outside of Nigeria, which was weak. Underlying growth in South Africa was also satisfactory; however net sales growth was affected by the transfer of production of Smirnoff Ice Double Black Guarana to Diageo’s DHN joint venture.

Net sales in Brazil declined in the quarter as price increases were taken in some states to align prices across the country. However, Diageo said it performed well in other parts of Latin America and the Caribbean.

In North America, Diageo’s biggest division, sales increased 0.1 per cent, while revenue in the European unit, which now includes Eastern Europe and Turkey, declined 1.4 per cent, missing estimates.

The group said its performance in Europe was impacted by declining sales in Russia and other Eastern European countries. In Western Europe, net sales fell by 1 per cent on the back of a weak performance in Benelux following price increases there, and continued weakness in Germany.

"Emerging markets' performance remains weak with further currency weakness in a few markets and specific geopolitical situations in some areas. However our brand performance has been strong in many markets including Turkey, East Africa, India and Colombia.," said Diageo chief executive Ivan Menezes.

“We expect full year top line growth to improve on last year’s performance. Our focus on our six performance drivers continues to build our capabilities and deliver the cultural change I want to see across the business. I am confident we are on the road to realise our full potential,” he added.

Elsewhere, rival Remy Cointreau also said it expects higher full-year sales, after declines eased slightly in its fiscal second quarter to 5.5 per cent from 5.7 per cent in the first quarter.

The namesake Remy Martin cognac, which accounts for more than half the company’s sales, saw sales fall 11.8 per cent in the second quarter, an improvement from the 15.3 per cent decline in the first quarter.

Additional reporting: Reuters/Bloomberg