Diageo toasts rising profits on emerging markets growth

26th August 2010, Comments 0 comments

Guinness maker Diageo, the world's biggest maker of alcoholic drinks, toasted rising annual profits on Thursday on the back of emerging markets growth and forecast more good times ahead.

Diageo, which also produces Baileys liqueur and Smirnoff vodka, said profits after tax climbed 1.5 percent to 1.63 billion pounds (1.99 billion euros, 2.54 billion dollars) in the 12 months to June.

Revenues grew five percent to 9.78 billion pounds, helped by Asian sales of Guinness stout and Johnnie Walker whisky, the company said.

"As expected this has been a year of challenges and opportunities," said chief executive Paul Walsh, noting a fragile economic recovery in Europe and the United States.

"Our performance was much stronger in the second half than in the first. Our performance in the developing markets drove overall growth while markets in North America and Europe remained weak," he said in an earnings statement.

Diageo predicted strengthening profits in the current year to June 2011 year as emerging markets continue to offset weakness in the West.

"The global diversity of our business, together with the strength and range of our brands and the agility we have demonstrated, gives us confidence that in fiscal 2011 we will be able to improve on the organic operating profit growth we have delivered this year," Walsh said.

Diageo, which also makes Blossom Hill wine, Captain Morgan rum and Jose Cuervo tequila, said operating profit grew 2.0 percent to 2.75 billion pounds -- in line with market expectations.

"The impact of the global economic crisis varied by market and the strength of the recovery appears to be equally variable," noted Walsh.

Euromonitor International analyst Jeremy Cunnington said Diageo was suffering in the United States because the country's cash-strapped consumers preferred to buy the group's cut-priced products.

He added: "In Europe, the company managed to see volume growth but at the expense of value ... Even in fast-growing emerging markets, volume growth came at the expense of value such as in Brazil and a less extent in China, although the latter was also helped by heavier marketing spend."

Diageo's share price closed 1.50 percent lower at 1,050 pence on London's FTSE 100 index of leading companies, which gained 0.91 percent to 5,155.84 points.

"Despite today's (share price) dip, the company is well regarded," said Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers.

"The shares have outperformed the wider FTSE 100 over the last year, having risen 10 percent versus four percent, and the current market consensus that the shares are a 'buy' is likely to remain unchallenged."

Diageo said it was recommending a 6.0 percent increase in the group's final dividend, adding that it had considered reinstating its share buyback programme, which was put on hold during the global financial crisis.

Hunter noted that a recent spike in wheat prices would prove a problem for the company going forward while exchange rate fluctuations could also be a challenge.

© 2010 AFP

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