Diageo revenues soar on marketing effectiveness and Brexit exchange rate boost

CEO Ivan Menezes credited product innovation with driving growth
CEO Ivan Menezes credited product innovation with driving growth

Drinks giant Diageo reported global sales up 14.5% to £6.4bn in the second half of 2016, thanks in large part to the strengthening of the dollar and Euro relative to the pound.

Organic sales growth, which removes the effects of exchange rates, was 4%. Chief executive Ivan Menezes said some of this was down to a focus on "marketing with impact".

Across the business, marketing spend increased 10% to £908m – though in Europe, it was down 2%, which Diageo said was the result of productivity initiatives aimed at improving the effectiveness of brand investment.

Speaking on a webcast this morning, Menezes said: "Europe is leading the marketing effectiveness work.

"We’ve significantly reduced the number of media agencies we use… we’ve rationalised our point of sale [operations]."

Menezes added that the company’s performance in Europe, with organic sales growth of 5%, was supported both by each of its key brands being "supported by a strong marketing platform which is driving recruitment," and a continual program of innovation.

Diageo’s innovation program has in recent years led to products such as Pimm’s Cider, Captain Morgan White Rum and Smirnoff Gold. Menezes said: "Approximately 10% of Europe’s sales now come from innovation. It’s a reliable driver of growth."

But it was the steep fall in the value of the pound following June’s Brexit referendum which meant sales in markets such as the US were far more lucrative to UK-based Diageo in sterling terms.

The growth meant that Diageo, whose brands include Smirnoff, Johnnie Walker and Guinness, announced an operating profit up 28% to £2.1bn.

Menezes said: "Diageo is building a stronger, more consistent, better performing company. We are identifying consumer trends faster, expanding the reach of our products across markets and developing trade channels to capture these growth opportunities.

"Our work on trade and marketing spend gives us better data enabling smarter, quicker decisions that generate higher returns."

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