Diageo has released its preliminary results for the 2017 financial year, with strong global sales and profit growth of 15 per cent and 25 per cent respectively.
In Australia net sales grew by 2.7 per cent, driven by growth in Scotch, premium spirits and the company’s RTD innovations.
In speaking about the result, Diageo Australia’s Managing Director, David Smith, said it has been a big year for the company’s innovation in spite of the challenges facing the spirits category.
“Despite consumers having to pay very high taxes on every bottle, innovation has driven the category into premix spirits growth,” Smith said.
“We have been a market leader in innovation that meets the growing consumer demand for lower tempo, refreshing drinks. Our F17 innovations include Bundaberg Lazy Bear, Smirnoff Pure, Pimms and this week we’ve launched our latest innovation Johnnie & Ginger.
“These innovations have addressed the consumer demand and are driving positive momentum in the premix category. Bundaberg Lazy Bear is the biggest premix innovation for close to a decade.”
Smith also highlighted a positive result for Bundaberg Rum, with new packaging and new advertising helping to bring the spirit back into growth in Queensland, “there’s still a long way to go, but the tide is slowly turning,” he said.
With premiumisation still a key element in the Australian alcohol landscape, the trend of Australian consumers drinking less, but drinking better has been highlighted with localised double digit growth for Diageo’s single malt Scotch brands as well as other premium products including Tanqueray, Don Julio, Ciroc and Ketel One.
While this result is positive for Diageo Australia, Smith also pointed out there are challenges ahead for the company and the spirits category in this country.
“Despite the positive FY17 performance, with the spirits sector facing twice-yearly CPI increases and the average priced bottle of spirits now more than 70 per cent tax, the current path of taxation is unsustainable for our business,” Smith said.
“It won’t be long before Australians are paying more than $100 for a case of Bundy Rum & Cola, around twice the price of a case of beer.”
Globally Diageo reported net sales of £12.1bn ($19.8bn) and an operating profit of £3.6bn ($5.9bn) and Chief Executive Ivan Menezes said the company is strong and confident of delivering sustainable growth.
“We delivered a strong set of results including broad based improvement in organic net sales and operating profit,” Menezes said.
“Our performance demonstrates the effective delivery of our strategy through disciplined execution of our six priorities put in place four years ago. We have delivered consistent strong performance improvement across all regions and I am pleased with progress in our focus areas of US Spirits, scotch and India.
“Our productivity work is delivering ahead of expectations allowing us to reinvest in our brands, drive margin improvement and generate consistent strong cash flow. Through productivity we have embedded an everyday efficiency mind set in the business and with improved data and insight we are making faster, smarter decisions on investment choices.
“Diageo is a strong company today and we are confident in our ability to deliver sustainable growth. We are raising our productivity goal to £700m with two thirds being reinvested in the business. We continue to expect mid-single digit top line growth, and we are raising our operating margin expansion objective to 175bps over the three years ending 30 June 2019.
“Following three years of consistently improving cash flow generation the Board has approved a share buy-back program of up to £1.5bn in F18.”