UK: Flat Europe fails to halt Diageo FY rise

By | 30 August 2007

Diageo has posted a lift in operating profit, despite only a minor rise in sales for its latest fiscal year.

The global drinks giant said today (30 August) that operating profit for the 12 months to the end of June increased by 6% year-on-year, reaching GBP2.16bn (US$4.33bn). Net sales in the period were up by 3% GBP7.5bn.

Net profit, however, slipped to GBP1.55bn from GBP1.96bn in 2005-2006, as the tax rate between the two periods increased from 8% to 32%.

In volume terms, sales were up by 6% to 141.3m of equivalent units.

In regional terms, North America saw sales rise by 7% and operating profit up 12%, thanks to price increases and mix improvements. Double digit growth in net sales of Smirnoff and Baileys helped Diageo up its share of the distilled spirits market in the US by 0.6% in the year. In Europe, however, both sales and operating profit were flat, as growth in Continental Europe and Russia partially offset sales declines in the UK, Ireland and Spain.

The group's international division delivered a sales increase of 18%, with operating profit climbing by 19%. Scotch performed well across the region, while Guinness sales accelerated in Africa in the second half. Asia Pacific, meanwhile, saw sales rise by 13% and operating profit increase by 7%, driven by a 22% climb in sales for Johnnie Walker in the region.

Turning to Diageo's main brands, all the key names delivered growth on the previous year, with the exception of J&B - down 3% - and Jose Cuervo - down 4%. The much maligned Guinness, saw sales come in flat for the year, as African sales buoyed lower performances in the UK and Ireland.

"Diageo's focus on proven brand and market building strategies has again delivered strong growth in top and bottom line and strong cash flow," said company CEO Paul Walsh.

"Our world leading brands, Johnnie Walker, Smirnoff, Baileys and Guinness along with Captain Morgan and Buchanan's were the strongest performing brands this year. Johnnie Walker enhanced its position as the world's leading Scotch whisky and now sells over 15 million cases. Smirnoff reinforced its position as the world's number one premium spirits brand and Baileys grew strongly, supported by the successful launch of the new Baileys flavours.

"Whilst we watch for any impact the current volatility in financial markets may have on broader trading conditions, the investments we have made in brands and markets this year have created an even stronger platform for the future. Therefore, we currently expect increased organic operating profit growth in 2008 of 9%."

Sectors: Wine

Companies: Diageo, Guinness, Smirnoff, Johnnie Walker, Captain Morgan

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