Diageo delivers full measure

Sales and underlying earnings came in slightly ahead of market expectations at drinks brands leviathan Diageo.

Net sales in the year to June 30th rose 8%, or 6% on organic basis, to £10,762m from £,9,936m the year before, beating market forecasts of £10,749m.

Profit before tax climbed to £3,121m from £2,360m in the previous year, leading to earnings per share, excluding exceptional items of 94.2p, up from 83.6p the year before and ahead of the 92.01p the market was expecting.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Looking at regional performances, with all changes on a a year-on-year organic basis, North America saw growth in volumes of 2% and a 6% increase in sales and operating profit. Europe's volumes and net sales both eased 1% but operating profit hardened 3%, while Asia Pacific racked up volumes growth of 2%, net sales growth of 8% and an eye-catching 18% improvement in operating profit.

As expected, however, it was in Africa and the Latin America/Caribbean regions where the most impressive numbers were achieved. Africa's net sales improved 11% on the back of a 5% increase in volumes, leading to operating profit growing by one-fifth. Latin America and the Caribbean grew net sales by 19% on the strength of a 10% increase in volumes, while operating profit increased by 18%.

In all, emerging markets, which amount to almost 40% of Diageo's business, grew net sales 15% and operating profit 23%.

"We have increased our presence in the faster growing markets of the world, through both acquisitions and strong organic growth. We have enhanced our leading brand positions globally, through effective marketing and industry leading innovation and we have strengthened our routes to market," said the Guinness brewer's Chief Executive, Paul Walsh.

"6% organic top line growth, 9% operating profit growth and 60 basis points [six-tenths of a percentage point] of margin expansion is a strong performance and demonstrates our commitment to delivering efficient growth," Walsh claimed.

Spirits, excluding the ready-mixed alco-pop offerings, saw organic net sales growth of 8% on the back of a 3% increase in volumes shipped. Spirits accounted for 66% of Diageo net sales and delivered over 80% of the group's growth, the Johnnie Walker and Bushmills distiller revealed. Developed markets grew net sales 4% on flat volumes and emerging markets grew 18% with 9 percentage points of positive price/mix through strong pricing and favourable mix as consumers move up the price ladder.

Beer sales rose 5% on an organic basis, with volumes up 2%. Beer brands represented 21% of Diageo net sales and grew 5% with the developed markets up 1% despite declining volumes, and emerging markets growing 9% with 6 percentage points of positive price/mix.

Wine sales fell 7% on a like-for-like basis with volumes down 3%, but are a relatively small part of Diageo's business, accounting for just 4% of net sales; the ready to drink offerings also saw volumes fall by 3% year-on-year, and accounted for 7% of Diageo's net sales.

A final dividend of 26.9p has been proposed, an increase of 8% from the year ended 30th June 2011. The full dividend will therefore be 43.5p, also an increase of 8% from the previous year.

JH