Diageo shrugs off Brexit threat as profits rise

Spirits giant Diageo has recovered its momentum after two flat years battling against an emerging market slowdown, with latest net like-for-like revenues up 2.8 per cent at £10.5 billion and volumes climbing 1.3 per cent.

Diageo says it has benefited from sterlings plunge since the Brexit vote on 23 June. Picture: AFP/Getty Images

It meant operating profits at the group rose 3.5 per cent to £2.8bn for the financial year to end-June, while chief executive Ivan Menezes played down the effect of the Brexit vote on the Scotch whisky division that represents some 25 per cent of sales.

Menezes, who along with the Scotch Whisky Association spoke before the EU referendum of the advantages of staying in the single market, said: “Regardless of where Brexit ends up it’s not a big deal in terms of business problems for us.”

He said Scotch would not face tariffs in markets such as the EU and North America, the latter region accounting for 50 per cent of group profits.

His advice to the UK government following Brexit was to “keep trade within the EU and globally as favourable (as possible) to support one of the UK’s biggest export industries”.

Menezes said Scotch whisky “has got a huge runway of growth around the world. Keep it healthy.”

He added that Brexit would cause “complexity and nuisance” in terms of things like extra paperwork for the Scotch whisky industry, but that could be “worked around”.

All of Diageo’s big-six global brands grew organic net sales, including Tanqueray gin up 12 per cent, Guinness up 4 per cent, Captain Morgan Rum lifting 3 per cent and Johnnie Walker whisky ahead 1 per cent.

With Johnnie Walker, the largest contributors to growth were Europe and North America, with rises of 7 and 5 per cent respectively. Scotch malts also performed well, with sales up 7 per cent.

On a full-year reported basis, sales fell 3 per cent, hurt by international currency devaluations and the loss of disposed assets such as Diageo’s wine business.

The firm said it had benefited from sterling’s plunge since the Brexit vote on 23 June, which will boost the UK company’s earnings and make its Scotch more competitive.

Kathryn Mikells, the group’s finance chief, said at current rates weak sterling would be worth £1.1bn in extra revenues and £370m in additional operating profits in the current financial year.

On Brexit, Mikells said: “It’s too early to comment on whether there would be any impact on the overall economic environment”

Menezes said in the wider shape of things that Diageo had shown renewed “momentum”, and it stood by its prior forecast for sales to grow annually at mid-single digit rate over the next three years, with operating profit margins set to expand 1 per centage point over that period.

The company recommended a final dividend increase of 5 per cent, bringing the full-year dividend to 59.2p. That compared with 56.4p in the previous financial year.

One analyst commented: “Diageo is beginning to show its paces again after a flat period.”