Food & Beverage

Diageo suffers foreign exchange hangover, CEO upbeat

Momentum will improve: Diageo CEO

Diageo's chief executive said the drinks giant was seeing good growth momentum across the business as it reported growth in first half sales, but the figure was weighed down by foreign exchange rates and the impact of the disposal of assets.

Diageo, whose brands include Guinness, Smirnoff vodka and Johnnie Walker whisky, said organic net sales in the six months ending December 31 grew 1.8 percent, on 1 percent organic volume growth.

The London-headquartered drinks giant said the weakness of many currencies against sterling, in particular the euro, the Venezuelan bolivar and the Brazilian real were only partially offset by the strengthening of the U.S. dollar. Shares of Diageo were trading 0.1 percent lower on Thursday.

Speaking to CNBC on Thursday, Diageo's Chief Executive Ivan Menezes told CNBC on Thursday that he was pleased with the group's progress.

"We've got very good momentum in the business and I'm pleased with these results...If you look under it, it's very broad-based. Our top six brands are all in growth and these are about half our business and they're growing about 4 percent."

Menezes said that the Scotch whiskey part of the business was back in growth, its beer business grew 7 percent and the emerging markets grew 4.5 percent. As such, he noted that there was "resilience and momentum and that's why I have the confidence that this momentum will improve as we go into the second half and into the medium-term."

An employee reaches for a case of Diageo's Smirnoff brand vodka at a distribution warehouse in Bolingbrook, Ill.
Daniel Acker | Bloomberg | Getty Images

Last July, when the group reported its full-year earnings, the group's chief executive said North America had been a tough market, with volume declining 3 percent and net sales dropping 1 percent.

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On Thursday, Menezes said that market had also improved and was confident the U.S. would continue to be an "engine of growth" for the company.

"(We are) on track...The underlying business is growing about 3 percent and the U.S. is a fantastic market for us, it's over 40 percent of our profits, the spirits market is in good growth and we have the leadership position there."

Diageo said in its earnings release that the group had seen continued momentum in Europe, growth in Turkey and net sales growth in Russia against the prior period "although the trading environment there remains challenging.

Further afield in greater China, organic net sales grew 4 percent but Menezes said the country's market still posed challenges and that he didn't think the company would "get back to the high double-digit growth rates in our business (there)."

"In the old days, we would be growing strong double-digit. In the results we've looked at (today) we've grown 4 percent. However, the move in China to drive more domestic consumption is, I think, good for consumer product companies and I remain confident that we will have a resilient business there."

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