The company expects to deliver a sequential improvement in organic net sales growth in the second of the fiscal 2025 (H2FY25) compared with H1FY25
As the company’s organic net sales were up 5.9 per cent in the third quarter of fiscal year 2025, with organic volume up 2.8 per cent, Diageo is now expecting to deliver a sequential improvement in organic net sales growth in the second of the fiscal 2025 (H2FY25) compared with H1FY25.
In the Q3FY25 trading statement, the company highlighted that reported net sales for the third quarter increased by 2.9 per cent to USD 4.4 billion, with positive organic growth partially offset by unfavourable foreign exchange and disposals. All regions delivered positive price/mix except Asia Pacific, where continued consumer downtrading and adverse market mix impacted net sales.
The company expects a slight decline in organic operating profit in H2FY25 compared with the prior year, broadly in line with the decline in the first half. This includes the impact of the tariffs currently announced, which will impact fiscal year 2025, it added.
As far as the fiscal year 2026 outlook is concerned, the company expects to deliver positive operating leverage, with organic profit growth ahead of organic net sales growth. On a regional front, the organic net sales grew two per cent in Asia Pacific in Q3, benefiting from favourable comparatives in this quarter with inventory reductions in South East Asia and Greater China in the prior year, and with continued growth in India, it stated.
Price Cuts In India
Highlighting that India is one of the world’s largest and probably one of the most exciting whiskey markets, Nik Jhangiani, the Chief Financial Officer (CFO) at Diageo, told analysts that the company expects the India-United Kingdom Free Trade Agreement (FTA) to be fully implemented only from FY27.
“This will take some time to embed into legislation. I think the belief right now is it will come in through for 2027, but we will keep watching that, so that will start flowing through,” Jhangiani stated.
While highlighting that a lot will depend across categories of scotch in terms of bottle and origin versus bottom in India, Jhangiani added, “If you look at that reduction of about 150 per cent down to the 75 per cent initially, that will enable probably a high single-digit decrease in consumer price, and we believe that should drive a similar high single-digit percentage increase in volume.”
Implications of Recent Tariff Developments
The company noted that tariffs between the United States (US) and China do not have a material impact on its business. It expects that, given the actions that it has in place already, before any pricing, it will be able to mitigate around half of this impact on operating profit on an ongoing basis.
“Looking ahead, we will continue to work on measures to mitigate this impact further. Our long track record of managing international tariffs gives us confidence in our ability to navigate this successfully. The expected impact in fiscal year 25 and fiscal year 26 is included in our guidance,” the company added in its trading statement.
On the capital expenditure front, the company stated that in fiscal 25, as guided previously, it expects capital expenditure for the full year to be towards the upper end of the previously guided range of USD 1.3 to 1.5 billion.
