Diageo shares up despite UK slump

Published: 23 July, 2008

Diageo's shares have risen by 23% in the past year and its figures for the half-year to 31 December show why.

In its two most important markets, North America and the fast-growing countries such as Russia, China, Brazil and India, it is powering ahead.

Underlying operating profits were 8% up at 1.31 billion, with comparable net sales up 6%. Diageo is confident these patterns will continue and has increased its predicted organic profits growth rate for the full year to 8%, outstripping the growth rate promised by Pernod Ricard.

In addition, Diageo said it would buy back up to 1bn worth of shares in the next financial year, taking the total it has repurchased in the past few years to 10bn.

The group was bolstered by strong sales of spirits, in particular from Johnnie Walker, its flagship whisky brand, where sales rose by 8% overall.

Total whisky sales rose by 11%. The most notable component of the trading statistics was the continued trend for consumers to trade up to premium and super-premium brands, which now account for 35% of Diageo's Scotch sales. Overall, the group also increased its margins across all products by almost a percentage point.

Sales rose by 7% in North America, where Diageo claims to be responsible for 60% of the market's growth, but dipped 2% in Europe, where the UK was notably disappointing.

In the UK, volumes fell by 12% and net sales were down 9%. Diageo said there was a growing trend for consumers to switch to off-trade purchases where they were more inclined to choose budget brands.

One disappointing feature of the results was the continuing decline in ready-to-drink lines such as Smirnoff Ice, where global volumes fell by 12%.

Diageo's chief executive Paul Walsh predicted that the decline would continue, but that Diageo was still making money' from the brand.

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