Alcoholic drinks maker Diageo's top line growth in the third quarter of its fiscal year was a shade ahead of some expectations, despite Europe proving something of a wet blanket.
The group, which owns brands familiar to tipplers worldwide, such as Johnnie Walker, Smirnoff, Captain Morgan and Guinness, delivered organic net sales growth of 6% in the three months to the end of March - the third quarter of Diageo's financial year. Nomura Securities had predicted third quarter revenue would be up 5% year-on-year.
Half of the organic net sales growth was accounted for by increased sales volumes and the other half by a change in the price/mix from last year.
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Reported net sales grew 11% in the quarter and 9% in the nine months ended March 31st 2012, both against the comparable prior period. Reported net sales grew faster than organic sales mainly due to the acquisitions of Mey Icki, Serengeti Breweries and Meta Abo Breweries.
In the nine months ended March 31st 2012 organic net sales growth was 7% with volume up 3%, which is in line with the performance in the first half of the 2012 fiscal year.
Over the nine month period North America (+5%), Africa (+12%), Latin America & Caribbean (+18%) and Asia Pacific (+10%) all achieved organic net sales growth, but Europe let the side down, contracting by 1%, though the third quarter performance was, at least, in line with the second quarter performance.
"Despite strong performance in markets such as Germany, we remain cautious for the outlook in Western Europe," admitted Paul Walsh, Chief Executive Officer of Diageo.
Third quarter performance in North America was boosted by the fact that the group was going up against weak comparatives, as in the January - March quarter of 2011 sales were hit by Diageo's decision to reduce discounts on its spirits range.
In Africa, a strong performance in East Africa in the third quarter more than offset a low single digit decline in Nigeria.
In Latin America, consumer trends continue to be robust, but the third quarter saw top line growth suppressed by changes in shipment patterns year-on-year, but these changes are expected to reverse in the fourth quarter.
"In Asia Pacific, our premiumisation [sic] strategy in Scotch in the emerging Asian markets continues to deliver double digit growth and therefore, while in Australia and North Asia consumer trends are weaker, the year to date performance is in line with the first half," Walsh said.
Net assets at the end of March stood at £6,001m, compared with £6,098m at the end of 2011. Net borrowings were £8,387m, up from £8,295m at the end of 2011.
Nomura had been expecting the company to reiterate medium-term guidance of 6% revenue growth and two percentage points of margin improvement over a three-year period, but Walsh contented himself with expressing confidence that the investments the group has made and the changes it has made to its operating model will continue to drive improving performance.
JH
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