Irish sales flat as Diageo plans €1.7bn share buyback round

Drinks giant Diageo has reported that net sales in Ireland were flat during its last financial year, but has increased medium-term group profit targets and announced a £1.5bn (€1.7bn) share buyback programme, writes Geoff Percival,

As part of its full-year results, covering the 12 months to the end of June, Diageo — which owns the likes of Guinness, Baileys, Gordon’s and Smirnoff — said its performance in Ireland was mixed with net sales flat.

Guinness sales were up 2% here (globally sales of the stout were “broadly flat”) but that was mainly driven by continued success of the Hop House 13 lager brand which continued to grow market share.

Hop House 13 — which only launched in early 2015 — grew net sales by 31% in the last financial year and has amassed a 3.2% share of the Irish market, in terms of pub sales. Diageo Ireland said approximately 25m pints of the brand have been sold since its inception. Distribution improvements helped the Guinness brands grow European sales by 2% during the year.

Diageo performed better in Ireland in the spirits segment, with that portfolio seeing sales growth of 10% — mainly driven by strong sales of Gordon’s gin and Smirnoff vodka. Baileys Irish Cream also remained strong with a 7% sales rise noted. Globally, Baileys sales grew 5%, with performance strongest in mainland Europe.

“Baileys is a true Irish success story and a brand that has seen a remarkable performance turnaround over the past two years. Baileys has never been in better shape. Performance is broad-based with core Baileys Original Irish Cream growing 5% and a rich pipeline of innovations… delivering above expectations and providing new platforms for future growth by tapping into consumer trends,” Diageo Ireland said.

Net sales of Guinness in Africa — traditionally a core market — declined 5% due to shifting drinking habits in key areas like Nigeria and Kenya, but that was partially offset by growth in regional markets in the continent.

On a group-wide basis, Diageo’s annual revenue of £12.05bn was slightly above an analyst consensus of £11.96bn. Adjusted operating profit was £3.6bn in the latest year, matching analysts’ forecasts.

The group also announced a £1.5bn share buyback and lifted its profitability target as the world’s largest distiller said efficiency gains were running ahead of schedule.

The London-based company raised its goal for profit margin expansion to 175 basis points from 100 points over the three years ending in June 2019 and raised its objective for productivity enhancements to £700m from £500m.

The distiller is joining other consumer-product companies, such as Unilever and Nestle, in cutting costs and boosting productivity in an effort to raise profitability. The moves come as activist investors take a growing interest in the sector.

Areas of focus will include Diageo’s supply footprint and promotional spending as the company implements a rigorous budgeting programme. The company is using new tools to understand the return on investment in marketing with the aim of increasing profitability while keeping costs flat or driving them down.

“Higher cost-saving guidance and a £1.5bn buyback give us confidence that Diageo’s earnings momentum is set to accelerate,” said Olivier Nicolai, an analyst at Morgan Stanley.

This story first appeared in the Irish Examiner.

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