The world’s largest spirits company and CBI member, Diageo has announced that the company beat half-year earnings and sales forecasts thanks to stronger demand from China.
Diageo said that organic net sales – excluding currency moves and one-off items as well as acquisitions and disposals – rose by 20% in China between June and February. Diageo attributes this strong performance to an increase in demand for Scotch and Chinese white spirits in the world’s second largest economy.
Diageo CEO, Ivan Menzies said: “[Diageo] is benefiting from consumer trends where people are drinking better and want better brands and experiences. People are moving to spirits and cocktails in a bigger way from wine and beer, and people are trading up for more premium brands. [It’s] hard to see a sustained shift yet, but we’re watching it closely. […] I feel good about the consumer momentum in China. Chinese consumers are looking to discover new special whiskies and drink better.”
This change in consumer tastes has buffered Diageo against the effects of the economic slowdown. First-half organic net sales rose 7.5% to £6.91 billion and earnings of 77p per share - beating analysts’ average forecasts of 71.4p. After the announcement was made, shares in Diageo rose by 5.5% and have continued to rise over the course of February. Diageo’s share price is currently 7.6% higher than January.
Off the back of strong sales, Diageo announced that it would buy back £600 million of shares and renew its focus on its Scotch business. Diageo’s Scotch sales in China have experienced the most pronounced consumer shift. Whereas Diageo used to make the majority of its Scotch whisky sales through partnerships with luxury hotels, the company’s Johnny Walker brand has transitioned to become a drink which Chinese consumers buy for private domestic consumption. Diageo’s vodka label, Smirnoff and rum brand, Captain Morgan, are experiencing a similar change in fortunes, and also performing well in the China market.
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