Diageo on track for good performance, CEO says

Diageo has reported a good start to its financial year on the back of the momentum it created last year, its chief executive has said.

Diageo CEO Ivan Menezes has spoken about the (Photo: Diageo)

Chief executive Ivan Menezes said the drinks giant was on track to deliver a “stronger performance” following progress last year improving marketing, innovation, and its commercial execution. Scotch, US spirits and India remained its key drivers.

“We have made a strong start to our productivity work and are moving at pace,” he said in the interim statement.

In July, the company reported profits down 6% to £2.24bn in the year to 30 June 2016 on the back of currency volatility, but said its strong US and European performance had kept it on track to deliver 2017 growth plans.

“Our top line momentum and progress in implementing productivity changes, gives us continued confidence in achieving our objective of mid-single digit top line growth, and over three years ending fiscal 19 delivering 100bps of organic operating margin improvement,” Menezes said.

However he pointed out that productivity related costs as exceptional items in the first half of the year were likely to impact its organic operating profit margin but that these would decline in the second half of the year.

“Productivity related costs will decline and be offset by higher savings as well as the benefits from our targeted reinvestment of those gains. This will contribute to organic margin expansion for the full year,” he said.

Shore Capital analyst Phil Carroll described the good start as “encouraging” in the run up to Diageo most important financial quarter, which includes the key Christmas run-up to Christmas, as it provided “increased confidence that the operational improvement initiatives put in place over the past few years continue to gain traction”.

Management reiterate its guidance stating that the good start to the year gives it confidence in meeting its objective of mid-single digit revenue growth and delivering 100bps of operating margin expansion over three years ending FY2019F.

This week Diageo was reported to be reviewing staff levels in order to make around £500m-worth of savings, although a spokesman told db any proposed changes to structure would be relayed to employees first. Its London HQ and global operations team were at the centre of the speculation about job cuts, according to City AM.