FDBusiness.com

Helped by strong growth in emerging markets and a recovery in some developed markets, Diageo has reported an 8% growth in operating profit before exceptionals to £1.87 billion on net sales up 8% to £5.76 billion for the six months ended 31st December 2011. Volume growth was 3% and organic net sales growth was 7%, driven by volume and price increases. Diageo achieved 9% organic growth in operating profit. Marketing was up 10% on an organic basis with 20% growth in emerging markets and 8% growth in North America

On the brands front, Johnnie Walker grew net sales by 15%, Smirnoff returned to growth, and global Guinness net sales grew 5% despite a 2% decline in Western Europe. The strongest performing categories were Scotch, up 14%, and vodka, up 13%, while Diageo’s beer brands delivered 7% organic net sales growth.

Paul Walsh, chief executive of Diageo.

“Diageo has delivered a solid and well balanced first half performance with 9% operating profit growth and 60 basis points of operating margin expansion,” comments Paul Walsh, chief executive of Diageo. “This is the result of the investments we have made to build our brands, deepen our routes to market in the faster growing markets of the world, enhance our leadership in US spirits and create an integrated organisation in Western Europe. In an uncertain economic environment we have again demonstrated the benefits of our geographic diversity and brand range.”

Diageo increased net sales by 18% and operating profit by 23% in emerging markets, which now account for almost 40% of the drinks group’s business. Its performance also improved in developed markets where Diageo delivered top line growth and operating margin expansion while marketing as a percent of net sales increased.

The performance of Diageo’s business in Western Europereflected the variation in the economies by country. The stronger economies of Germany and France delivered double digit net sales growth. In the weaker economies of Spain, Greece and Ireland, net sales declined. In Great Britain net sales also declined in line with a strategy to reduce the depth of promotions, that delivered 4 percentage points of positive price/mix. Overall volume performance was flattered by the sales buy-in in France ahead of an excise increase in January 2012 and the lapping of a destock in Spain in 2010.

With each market growing double digit net sales, strong performance in Russia and Eastern Europe was driven by Scotch, with Johnnie Walker net sales up 22%, and White Horse, the number one whisky in Russia, up 15% on the back of the first ever image campaign for the brand.

Looking ahead, Paul Walsh adds: “We are cautious as to the consumer and economic trends we will face in 2012 but these first half results have positioned us well and they have demonstrated that Diageo has the brands, the routes to market and the people to deliver our medium term guidance. The increase of 7% in the interim dividend signals our confidence that we are making a strong business stronger.”