Diageo weathers Guinness downturn
Published 25/08/2011 | 11:22
Drinks giant Diageo has hailed its performance in emerging markets after profits rose despite sales of Guinness falling again in Europe.
Sales of the famous stout declined 5% across the continent, with volumes in core markets of the UK and Ireland hit by economic conditions, pub closures and the rise in VAT, as well as other duty increases that shifted drinkers towards supermarkets and off-trade outlets.
Spirits did better, with a strong showing by deluxe brands such as Johnnie Walker Blue Label Scotch and Tanqueray gin, while wine sales also picked up to lift UK sales overall by 2%. Ireland sales were 11% lower.
European revenues overall fell by 5%, which triggered a 23% slump in profits in the region to £621 million, with sales in Spain and Greece especially weak due to the grim economic situation in the two countries.
Total sales in the year to June rose 2% to £9.94 billion, with profits overall 5% higher at £2.36 billion as Scotch and vodka sales in emerging markets - led by Johnnie Walker and Smirnoff - and good sales of top end brands in more mature markets offset the problems in Europe.
The group, which in May announced a drive to save £80 million by 2013, saw profits rise by 9% in North America and by 8% in Asia Pacific.
Chief executive Paul Walsh added that while the group was not immune to the global economic uncertainties, the figures were a "strong platform" to achieve its targets of 6% organic annual sales growth, a 2% margin improvement and double digit earnings per share growth over the medium term.
Shares opened strongly on the back of the figures, rising by nearly 5% to 1168p. The dividend for the year went up by 6% to 40.4p, with Mr Walsh indicating that hitting its targets would "underpin even stronger dividend growth."
Martin Deboo, an analyst at broker Investec, said the results were a solid set of numbers in still-difficult conditions, while the commitment to expanding sales and margins was welcome.
The company's indication of a lower tax bill going forward was also a positive and may be behind today's strong rise in shares, he added.