Diageo’s net profits hit by changes in taxation

Drinks group Diageo has reported a rise in half-year profits as demand for its global brands continues to grow in emerging markets. Pre-tax profits were GBP 1.86 billion (USD 2.95 billion) for the six months to 31 December 2011, up 15 percent on the same period a year earlier.

Still, Diageo reported a 20 percent drop in net profit to GBP 953 million (USD 1.5 billion), because the authorities had stripped it of the right to certain tax deductions in future years.

Net sales improved year-over-year to GBP 5.76 billion (USD 9.1 billion) from GBP 5.32 billion pounds.

Diageo, whose brands include Guinness, Smirnoff and Johnnie Walker, has seen its long-term strategy of building sales and profits in emerging economies pay off. Sales in these regions now account for 40 percent of Diageo’s total business.

That helped to offset European sales, which were depressed by poor trading in eurozone nations such as Spain, Greece and the Irish Republic. The economic woes in Ireland, amongst others, have contributed to a steep fall in Guinness sales – down 5 percent in the year to June 2011, it was reported. Already in January this year, Diageo had announced it would put EUR 153 million (USD 203 million) into its St James’s Gate brewery in Dublin, turning it into its brewing centre in Ireland, while ceasing production in Dundalk (July 2013) and Kilkenny (December 2013).

Likewise, UK sales were hit by a decision to hold firm on prices and cut the number of promotions.

Elsewhere, Latin America remained the company’s strongest market with a 23 percent sales growth, compared with a 12 percent growth in Africa, 10 percent in Asia and 5 percent in North America.

Going ahead, the company said it is cautious as to the consumer and economic trends it will face in 2012.