Diageo on track for growth but ‘not immune’ to global trade disruptions, CEO warns

Diageo is on track to achieve net sales growth, chief executive Ivan Menezes announced today, but he warned the company was not immune from “significant changes to global trade policy”.

Ivan Menezes, chief executive of Diageo.

In a trading commentary ahead of the company’s AGM, Menezes said the company’s fiscal year had started well with the strong comparable from last year meaning that organic operating profit in the first half would be in line with, or slightly behind organic net sales growth.

However, he added that the company would not be immune from “significant changes to global trade policy”, which it would continue to monitor closely – thought to be a nod to the proposed trade tariffs President Trump is threatening to slap on EU goods entering the US, including Scotch, as well as the on-going tension between the US and China, rather than Brexit.

The US is one of the biggest importers of Scotch, worth around £1.04 billion, or 22% of the global total, but Diageo Europe, Turkey and India president, John Kennedy, previously said the company was “resilient” enough to overcome any new trade barriers.

Another big trading challenge is Brexit, however Menezes has previously said although Diageo did not think a no-deal Brexit was a good idea, it could “handle” a no deal scenario.

In the update published this morning, Menezes said global spirits giant was continuing to make progress against its strategy and build momentum.

“Our focus remains on delivering quality sustainable growth. This is supported by a culture of everyday efficiency that enables us to invest smartly in marketing and growth initiatives while expanding margins,” he said. “Based on the current environment, we continue to expect fiscal 20 organic net sales growth to be toward the mid-point of the 4% to 6% range and organic operating profit growing roughly one percentage point ahead of organic net sales.”

In July, Diageo reported a 3% rise in operating profit to £4.042 billion with reported net sales up 5.8% to £12.9 billion in the year to 30 June 2019, up from 5% last year. At the time Menezes predicted the group would grow organic operating profit ahead of net sales in the range of 5%-7%.