Emerging Markets Drive Sales and Profits at Diageo
Buoyed by strong growth in emerging markets, particularly by its Scotch whisky brands, Diageo has achieved 5% organic growth in both net sales to £9.94 billion and in operating profit before exceptionals to £2.88 billion for the year ended June 30th 2011.
Exceptional operating costs were £289 million for the year including a net charge of £111 million in respect of restructuring programmes. Group profit before taxation increased by 5.4% to £2.36 billion.
Three of Diageo’s four regions –North America, International and Asia Pacific – saw organic growth in net sales, operating profits and marketing spend. However, in Europe, net sales and operating profit fell by 3% and 7% respectively and marketing spend was down 4% on an organic basis.
“The very challenging trading environments of Spain and Greece are well understood and led to the overall decline in net sales for Europe this year. However, excluding these two markets, net sales in the region grew,” explains Andrew Morgan, president of Diageo Europe. “Strong performances from our Scotch and rum brands led to double digit organic net sales growth in Russia, Eastern Europe and Germany, while Great Britain, France, Benelux and Italywere resilient, with single digit growth. Throughout the year we focused our marketing spend on the biggest opportunities.”
Diageo is continuing to restructure its gloabl business to adapt to changing market requirements. In May, the company announced an operating review which is expected to reduce cost of goods and operating costs by approximately £80 million per annum by the end of fiscal 2013. The total cost of the changes which have been identified is expected to be £160 million, of which £77 million was taken as an exceptional charge this year.
Diageo also expanded its presence in faster growing markets during the year through a series of deals worth £1.6 billion, including taking a controlling stake in Serengeti Breweries inTanzania, an equity stake in Halico inVietnam, making additional investment in ShuiJingFang in China and the £1.3 billion acquisition of Mey Icki, the leading spirits company in Turkey.
“Our leading brands and superior routes to market have delivered volume growth, positive price/mix, gross margin expansion and strong cash flow. We have strengthened the business, investing more behind our brands and in our routes to market and we have deepened our leading brand and market positions in the fastest growing markets of the world,” comments Paul Walsh, chief executive of Diageo. “In addition we have implemented changes to drive further operational efficiencies. While Diageo is not immune from a fragile global economy, this is a strong platform. It is the basis of our medium term outlook for average organic top line growth of 6%, organic operating margin improvement, with the first 200 basis points achieved in the next three years, and double digit eps growth.”
