Diageo remained bullish on it half-yearly figures, despite flat sales in the UK and “chronically weak” figures in Southern Europe.

The company reported 5% organic growth, with organic profit growth of 8.8%, driven by growth in emerging markets, and strong performance of whisky (37% of net sales), vodka and rum.  

Net sales in the UK remained largely unchanged in the six months to 31 December 2012, which the company attributed to continuing tough trading condition.

It maintained it was continuing to successfully bring back value to the market by reducing deep discounting, despite a “short-term” knock-on effect on brands such Baileys and Smirnoff. Although net sales of Smirnoff fell, this was offset by a 0.2ppts value share gain. 

Guinness continued its decline, despite the £33m pumped into the ongoing ‘Made of More’ marketing campaign which kicked off in October. In the 52 weeks to 13 Oct 2012 [Nielsen] Guinness sales declined by 10.6% to £63.6m.

However the company saw better results on Red Stripe, where continued expansion in the off-trade had helped drive a 1% growth in beer net sales. 

Strong UK sales of rum brand Captain Morgan, helped drive growth across Western European of 15%, outperforming the market. There was also good growth in super premium reserve labels, up 7% in Western Europe.

Andrew Cowan, country director of Diageo GB, said the share price remained strong, at 32.9% of the total trade (52 weeks ending 3 November 12 (on trade) and 10 November 2012 (off trade)).

Strong sales in Germany and the Netherlands helped drive a good performance across Northern Europe, despite a “significant decline” in France.

Investec analyst Nicola Mallard described sales across Southern Europe, down 16%, as “chronically weak”, pointing out a “striking polarity” between emerging markets including Russia, Eastern Europe and Turkey, and Southern Europe. The company said this was the result of weak consumer trends and reduced stocking across the off-trade.

Worldwide, growth was particularly strong in Latin America, up volume growth resulting in an 18% uplift, while net spirits sales also up 6% in North America, driven by whisky and vodka.

Chief executive Paul Walsh said the strong overall results reflected the global strength of the company’s strategic brands and the increasing presence in emerging markets.

“Net sales growth was driven by our pricing strategy and premiumisation, particularly in the US,” he said. “This drove gross margin expansion, which together with our continued focus on operating efficiencies, delivered operating margin improvement.”

In December, the company ended talks to acquire tequila brand Jose Cuervo.

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