Emerging markets boost first half sales at Diageo

Drinks giant Diageo saw net sales rise 8% in the first half ended December 31st, as strong growth in emerging markets helped offset a more subdued performance in Europe and North America.

The firm, famous for its Johnnie Walker whisky, Smirnoff vodka and Guiness stout, reported net sales of £5,757m, up from £5,320m in the previous first half. This was 7% higher on an organic basis. Pre-tax profit increased by 15% from £1,612m to £1,860m.

The emerging market business, which now accounts for nearly 40% of the total business, saw net sales and operating profits grow 18% and 23%, respectively. On the other hand, Europe's sales were flat, while North American sales improved by just 5%. Volumes were both flat in North America and Europe.

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In North America, the firm says it is encouraged by signs of an economic recovery and has increased marketing spend. Increased sales of the premium and super premium brands drove price/mix improvement.

In Europe, the company continues to be affected by the economic environment with double digit sales growth seen in Germany and France and a fall in net sales in Spain, Greece and Ireland. Great Britain net sales also declined in line with a strategy to reduce the depth of promotions.

Markets in Africa, Latin American, the Caribbean and Asia Pacific regions remain more favourable, with strong growth in volumes and sales seen over the six-month period.

Free cash flow dropped from £775m at December 31st 2010 to £533m due to the increased investment in maturing inventory for future growth and payments made in respect of the move to a new run distillery in the US Virgin Islands.

The interim dividend was raised by 7% to 16.6p per share.

Chief Executive Paul Walsh said: "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."

BC