On a constant currency basis, first half net sales fell by two per cent, as did volumes. Operating profit dipped three per cent, and would have fallen further if it weren’t for a five per cent reduction in marketing spend.
There were some bright spots worth toasting: operating profit in its Asia/Pacific region was up five per cent, thanks to a strong performance from China and South Asia, where the middle classes like to be seen drinking premium brands. And operating profits in Africa and Latin America jumped sixteen per cent.
These performances didn’t take the edge off of poor numbers from North America and Europe, where net sales fell six per cent and five per cent respectively. Customers in these mature markets are suffering a debt-fuelled hangover, and they aren’t turning to Smirnoff vodka or Bell’s whisky for the hair-of-the-dog.
Diageo’s expansion in emerging markets hasn’t been fast enough: North America and Europe still account for 80 per cent of operating profit, which fell between two and three per cent in the first half.
The distiller is still predicting full-year operating profit growth in single low digits, but that is looking fanciful. It will have to grow organic profits by five per cent in the second half just to end the year flat, and by 10 per cent to post a two per cent rise. That will be hard: the second half accounts for just 40 per cent of profit. Of course, there is a chance that consumers will trade back up to Diageo brands when unemployment starts to fall. Sober investors won’t stick around to find out.