Shares in Diageo moved ahead yesterday despite the Scottish-headquartered drinks giant reporting lower-than-expected sales for the half year.
The makers of many of the world’s best known spirits and beers including Guinness, Johnnie Walker, Smirnoff and Moet Hennessy saw organic sales, excluding new acquisitions and disposals, fall 0.1% year-on-year.
Net sales for the six months were £5.9 billion, marginally below the forecast £6bn, though they picked up in the latter part of the period.
Diageo yesterday outlined several reasons for the performance, including the “challenging global market”, with a lack of overarching recovery in the US and western Europe.
Growth in key emerging economies was also slower, with currency volatility distorting trading patterns in some areas.
Second-quarter performance was strong but failed to lift net income, which was down 18% in the first half to £1.3bn.
Foreign exchange volatility is expected to impact operating profits by £85 million in the full year to June and add around £10m in net finance charges.
The world’s largest Scotch whisky producer launched a sweeter-tasting Haig Club, the brand endorsed by football star David Beckham, in November to reverse a sales slump in China.
The move followed the government’s anti-extravagance campaign, which led to a 65% fall in Diageo’s sales in the world’s biggest country.
Diageo announced plans to cut costs by £200m a year by 2017 to address slowing demand in China and other emerging markets, which together account for more than 40% of the group’s total sales.
The firm also warned suppliers it would extend invoice payments to 90 days from February 1 on all new contracts and tenders.
Group chief executive Ivan Menezes said: “We have improved our performance during the half and we have again shown the strength of our brands, which is driving our share gains; our strong innovation capability, which has enabled us to access new growth opportunities; and our focus on cost.
“We delivered the planned savings from our global efficiency programme together with procurement benefits in marketing spend, which we have reinvested in our brands, and we increased our investment in our routes to consumer while again expanding our margins.
“We have already taken action to improve the performance of those brands and markets that have not performed as well as we would expect.
“This contributed to our stronger second-quarter performance, and I expect to maintain this momentum through the year.”
Diageo is one of Fife’s most important employers, with a 1,100 strong workforce in the region that has been supported by an investment programme topping £400m in recent years.
Cameronbridge Scotland’s largest distillery, with capacity to produce more than 400m bottles of spirit annually has received upgrades worth more than £100m, while a further £86m has been invested in a third state-of-the-art bottling line and premium packaging facility at Leven.
Diageo has also committed more than £150m to the development of Cluny Bond near Kirkcaldy, a facility that will eventually become Europe’s largest bonded warehouse complex once all 46 of its maturation sheds have been constructed and filled.
Shares in Diageo closed the day up 60.50p or 3.08% at 2,022.50p.