Diageo (LON:DGE) has updated investors on its half-year performance this morning.
Highlights from the company statement:
· Reported net sales (£6,421 million) and operating profit (£2,065 million) were up 14.5% and 28.0% respectively, reflecting accelerated organic growth and favourable exchange
· Organic growth, across all regions, with 1.8% volume growth and 4.4% net sales growth
· Organic operating profit grew 4.4%, in line with top line growth, driven by gross margin improvement, good progress on productivity offset by implementation costs and the profit on sale of the UB shares in the prior period
· Free cash flow continued to be strong at £1,084 million, increasing by £245 million compared to the prior period with net cash from operating activities up £230 million to £1,267 million
· Basic eps of 60.3 pence. Pre-exceptional eps was 62.0 pence, up 21%, as higher operating profit and associate income along with favourable exchange more than offset the impact of disposals and a higher tax rate
· Interim dividend up 5% at 23.7 pence per share
Ivan Menezes, Chief Executive, commenting on the results said:
"We have delivered a strong set of results with broad based improvement in both organic volume and top line growth and this positive momentum demonstrates continued effective execution of our strategy. Highlights this half include improved performance in our US Spirits business and across our scotch portfolio, driven by our focus on marketing with impact, innovating at scale, expanding our route to consumer, and winning in reserve. Progress on productivity supports growth, margin improvement and consistent strong cash flow generation as well as improving our agility.
Diageo is building a stronger, more consistent, better performing company. 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 work on trade and marketing spend gives us better data enabling smarter, quicker decisions that generate higher returns.
Our expectations of delivering stronger financial performance this year are unchanged. We are confident of achieving our medium term objective of consistent mid-single digit top line growth and 100bps of organic operating margin improvement in the three years ending 30 June 2019."
Outlook for exchange
Using exchange rates £1 = $1.24; £1 = €1.16, the exchange rate movement for the year ending 30 June 2017 is estimated to favourably impact net sales by approximately £1.4 billion and operating profit by approximately £460 million and have an adverse impact of approximately £36 million on net interest. This is primarily driven by the strenghtening of the US dollar and the euro.
Outlook for tax
The tax rate before exceptional items for the six months ended 31 December 2016 was 20.9% compared with 19.0% in the prior period. It is expected that the tax rate before exceptional items for the year ending 30 June 2017 will be approximately 21%.
Interim dividend at 23.7 pence per share is up 5%.
Diageo has agreed with its ADR depositary bank that from the beginning of fiscal 2017, a dividend fee will be charged at the rate of 1 cent per ADR per dividend payment.
Acquisitions and disposals
The impact of acquisitions and disposals on the reported figures was primarily attributable to the prior period disposals of non-core assets, including the Desnoes & Geddes Limited beer business based in Jamaica and the group's wine businesses in the United States and United Kingdom. The year on year net impact from acquisitions and disposals on net sales was £(236) million and on operating profit was £(42) million.