Drinks giant Diageo reported a slump in sales and volumes as turmoil in emerging markets and currency fluctuations delivered a hangover in the firm’s first quarter.
The maker of Johnnie Walker, Baileys and Smirnoff reported net sales down 1.5% and volume down 3.5% – although premium “reserve brands” were up 10%.
The firm insisted its full year top line growth was on track to “improve on last year’s performance” as it heads into the important Christmas season. Last year sales fell 9%, although rose 0.4% when the foreign exchange fluctuations is stripped out.
Diageo warned that weaker currencies – particularly the Venezuelan bolivar – are set to take £95million out of this year’s operating profits, although this would be an improvement on last year’s £336million.
Diageo’s business in the Asia Pacific suffered in particular during the period, with sales falling 7.4%. Sales continued to be hit by Beijing’s anti-extravagance policies but the firm said the effects of the crackdown, which discourages the habit of offering champagne, cognac, and whisky as business gifts, have now moderated.
Performance in Europe was impacted by declining sales in Russia and Eastern Europe as a result of weak consumer confidence and the uncertainty arising from turmoil in Ukraine, Diageo said.
Ivan Menezes, Chief Executive, said: “Consumer trends in most markets are unchanged and our first quarter performance is in line with our expectations.”
The only market to see a slight – 0.1% – rise in sales was the US.
“In North America, consumer demand for mainstream brands is still constrained by weak consumer confidence in average income households while our reserve brands and our innovations continue to perform well, as they do globally,” said Mr Menezes.
“Western Europe is now stable and I continue to expect full year performance to be flat although there will be quarterly fluctuations around that level.
He added: “Emerging markets’ performance remains weak with further currency weakness in a few markets and specific geopolitical situations in some areas. However our brand performance has been strong in many markets including Turkey, East Africa, India and Colombia.
“We expect full year top line growth to improve on last year’s performance. Our focus on our six performance drivers continues to build our capabilities and deliver the cultural change I want to see across the business. I am confident we are on the road to realise our full potential.”