Diageo grows profits ahead of sales
After the poor half-year results from the brewers, Diageo’s full-year figures, which it released on 25 August 2011, were a relief to investors. Total sales in the year to June 2011 rose 2 percent to GBP 9.94 billion (EUR 11.2 billion/USD 16.3 billion), with profits overall 5 percent higher at GBP 2.36 billion (EUR 2.7 billion/USD 3.9 billion).
Apparently, Scotch and vodka sales in emerging markets – led by Johnnie Walker and Smirnoff – and good sales of top end brands in more mature markets helped Diageo offset the problems in Europe.
Diageo’s European revenues fell 5 percent in the year which triggered a 23 percent slump in profits in the region to GBP 621million (EUR 703 million/USD 1.0 billion). Sales in Spain and Greece were especially weak due to the grim economic situation in the two countries.
Sales of the Guinness stout declined 5 percent across the continent, with volumes in core markets of the UK and Ireland hit by economic conditions, it was reported.
Diageo has set itself an ambitious 10 percent-plus earnings growth target for the current financial year. The company was upbeat, saying it had not seen the effect of poor weather and weak consumer demand which undermined Heineken’s sales in July and August.
Diageo’s Finance Director Deirdre Mahlan was quoted as saying that Diageo was a more balanced business than Heineken with a broader base, and although the southern European markets of Greece and Spain saw sales falling, emerging markets in Latin America, Africa and Asia grew strongly, and even North America saw some growth.
Ms Mahlan may have a point here: Heineken has said that weak consumer sentiment and a damp summer would wipe out its profit growth in 2011, while Danish brewer Carlsberg has cut its 2011 outlook due to falling Russian sales.
Many analysts think that Diageo is less dependent on beer and Europe than these two brewers. Just over 10 percent of Diageo’s sales come from beer, while some 35 percent of its overall turnover derives from fast-growing emerging markets like Brazil, China, India and Mexico.
