Diageo bullish

27 August, 2010

The world’s largest drinks industry is optimistic about the global economy, having posted a organic sales increase and operating profit growth of 2% for the year ended June 30.

Diageo has posted an organic sales increase and operating profit growth of 2% for the year ended June 30. In the current economic conditions Diageo shareholders should be well satisfied with a 6% increase in final dividend, to 23.5 pence per share.

Chief executive Paul Walsh was his usual indefatigable self at the announcement of the company’s impressive, solid results on August 26. With his senior directors all lined up in a row to answer specific and/or difficult questions, Walsh outlined how well the global drinks giant has done in difficult economic conditions.

He announced 5% organic net sales growth in scotch and in beer. He claimed that Singleton was the fastest growing and now one of the best selling single malt whiskies; Cîroc was “on fire”, posting a 46% sales increase with Ketel One at a more modest 5% in an otherwise difficult US vodka sector. The company is the number one on-premise supplier in 12 of its 14 global markets.

Walsh said the investment in Scotland – the new malt whisky distillery, consolidation of bottling lines and the grain distillery, was going well and the controversial new rum distillery in the Virgin Islands would “transform the economics of Captain Morgan”.

Walsh acknowledged that while the economic conditions were tough in the UK and Ireland, Diageo had enjoyed two and a half years of share gains in beer. “The future of Guinness is more than Ireland,” he said. He pointed to Africa and specifically Nigeria, Ghana and Cameroon as key markets for the world famous stout. But also the company had re-introduced Harp and Smethwicks in Ireland. “Compared with any of the other players (beer), we are top of the class. The global opportunity is immense,” said a triumphant Walsh.

He put Diageo’s apparent resilience and success down to:

-       its global direction;

-       outstanding brands;

-       fantastic people

-       and its fiscal strength.


On Asia, Walsh said the company wished to grow “organically and inorganically and if they see an opportunity they will move as quickly as the system allows (referring specifically to China)”. He said scotch was the largest single category and Diageo had outperformed its competition, citing 12% growth in sales of Johnnie Walker Black Label.

The company claims to have saved approximately £120 million already with another £60 to £65m coming from savings specifically in Ireland and Scotland.

As to the future, Walsh discerned a “gradual improvement in footfall” with the restaurant trade, particularly in the US, starting to pick up. He also perceived “price realisation, an improving mix coming back into the US”. His major concern for holding back the economic recovery was unemployment that he described as a “challenge”.

Asked about the rumoured move to the Netherlands for tax purpose, Walsh said they “continue to monitor the situation”. In a veiled threat to the new UK Coalition government, Walsh pointed out that Diageo was a “global entity" with just 7% of sales in the UK. He said if they felt they were “taken for granted” and taxes were increased, they “will take a view”.

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