The world’s leading drinks group, Diageo plc, has issued an upbeat trading statement, saying that business was holding up in spite of tough economic conditions, exacerbated by the Iraq conflict and the SARS outbreak.
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In a trading update for the year to the end of June, the company said it did not expect to improve on the 1% organic volume growth and 4% growth in organic net sales reported in the first half. However, Diageo added that organic growth in operating profit was likely to be “marginally better” than the 6% registered in the first half.
In light of the tough conditions and the recent downbeat statements by a number of European brewers, some analysts had been expecting worse news from Diageo.
“Diageo’s scale, geographic diversity and brands have again provided a firm platform for top and bottom line growth even in the challenging environment which international consumer goods companies have faced in the last 12 months,” the company said in a statement.
The group’s global priority brands continued as the main drivers of growth. Volume of these brands, excluding ready to drink products, were up thanks to stronger growth across a number of brands but particularly from Smirnoff and Guinness. The company also benefited from the inclusion of Captain Morgan in the organic growth figures.
In the US Diageo said the spirits market had shown robust growth despite a weak economy.
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By GlobalData“This is particularly true of premium brands where Diageo is well placed. Diageo’s priority brands excluding RTD, particularly Smirnoff, Baileys, Johnnie Walker Black Label, Captain Morgan and Crown Royal, continued to perform well,” the statement said.
The Smirnoff Ice range of flavoured malt beverages gained share in recent months, rebuilding to 37% of the category. However volume is likely to be down about 12% for the full year, the company said.
In the UK, Diageo said the RTD category had not yet recovered from the impact of increased excise duties in 2002, though Smirnoff Ice had in part offset this impact through further share gains and the successful launch of Black Ice.
In Ireland, Diageo said, “the beverage alcohol industry, which has been in decline, has deteriorated further as a result of the increased excise duty on spirits introduced in December 2002 and the continuing slowdown in economic growth. In this context, volume performance of Diageo’s brands deteriorated in the second half across all categories with volume expected to fall 5% in the full year.”
In the last of its key markets, Diageo said Spain had recovered in recent months and the comany has been able to build upon the share gains made in the first half of the year. Volume of Diageo’s brands is up about 14% in the second half of the year with volume of J&B up about 9% and continued outstanding growth of Cacique.
The company said that overall growth in marketing investment, which was up 13% in the first half of the year as a result of the high number of new product launches, will be lower than net sales growth in the second half but for the full year will continue to be ahead of the growth in net sales.
