Diageo profits jump 8% on back of emerging markets and premium spirits

Premium spirits and continued strength in emerging markets helped Diageo offset a “challenging” performance in Europe, the company reported today.

The drinks giant’s net sales to the year ending 30 June 2013 grew 5% with a “significant expansion” in operating profits, up 8%, driven by an 18% uplift in emerging markets. Net sales hit £11.4bn while operating profit rose to £3.5bn.

“This year we have again made a strong business stronger and we remain on track to deliver our medium-term guidance,” said chief executive Ivan Menezes. “The investments we have made to enhance our routes to market in Africa, Latin America and Eastern Europe have driven strong growth.”

He said the company was addressing the challenges in Southern Europe and Ireland, where net sales declined 11%, and capturing growth in the stronger markets of Western Europe.

The picture across Western Europe was muted, however, with operating profit down 7%, on volumes down 3% and net sales down 4%.  Strong sales of rum brand Captain Morgan and reserve spirit brands in double-digit growth helped to offset falling sales of Guinness (down 3% overall) and a weak beer market.  Sales in both ready to drink and Diageo Wines Europe declined 10%. Marketing spend reported movement was down 8% overall. 

In the UK, improved performance of Smirnoff, new innovation and double-digit growth in reserve brands (up 14%) helped keep trading “resilient”, Diageo said, and offset the weaker beer market. There was also a 9% slide in ready to drink, despite an extension to the pre-mix cans range. 

The resurging demand for gin saw good performance in Tanqueray, while luxury vodka brand Cîroc and Johnnie Walker Gold Label Reserve and Platinum Label also grew, country director for Diageo UK Andrew Cowan said. New Smirnoff variants blueberry, vanilla and espresso gained market share and Captain Morgan also saw a good performance, he added.

However sales of Guinness fell 3%, despite a share growth in the last quarter driven by increased marketing spend.

“Overall beer volume performance was impacted by consumption decline in the off-trade,” he said.

Diageo’s total market share in the UK was reported as 31.9% (MAT w/e 15/06/13 [on trade] 22.06.13 [off trade]).

Global sales

The most significant contribution to net sales growth came from Africa, Eastern Europe and Turkey, driven by strong spirits sales led by Johnnie Walker and Smirnoff, following a ramp-up of marketing. Although volumes of beer fell in Africa, net sales grew and the company said it was a key opportunity for long-term growth and remained a focus of investment. 

Sales were also strong in North America, driven by premiumisation and innovation in the company’s spirit portfolio, and Latin America and the Caribbean, where new sales grew 15%, driven by Scotch.

Asia Pacific saw net sales up 3% despite a fall in volume, driving operating profit up 6%. South East Asia and China helped drive net sales, up 14% and 8% respectively, offsetting declines of 11% in North Asia. However India saw net sales down 2% and volumes down 5%, despite an increase in Scotch brands.