Diageo posts strong results

25 August, 2011

Diageo has cited ‘emerging markets’ as a reason for its positive results – including 16% growth in scotch whisky in emerging markets. 

The company also said that its premium Reserve Brands portfolio grew 24% in ‘developed markets’. The Reserve Brands portfolio includes Zacapa rum, Don Julio tequila and Tanqueray 10 gin. 

The company announced its results for the year ending June 2011, on August 25. Full year net profits rose 17% to £1.9bn. 

This is the results summary from Diageo:

• Stronger second half performance with improved price/mix and operating margin expansion led to 5% organic growth of net sales and operating profit for the full year. Volume growth remained at 3%

• Volume growth and price/mix driven by 16% growth in scotch in the emerging markets and 24% growth in the reserve brands portfolio in the developed markets

• Gross margin expansion of 70 basis points driven by improved mix in emerging markets and North America, and efficiencies across our Global Supply operations

• Organic marketing spend up 8% to 15.5% of net sales, mainly in emerging markets and for key spirits brands in the United States

• Continued strong free cash flow of £1.7 billion

• Recommended increase in the final dividend of 6%

• In May Diageo announced an operating review which is expected to reduce cost of goods and operating costs by approximately £80 million per annum by the end of fiscal 2013. The total cost of the changes which have been identified is expected to be £160 million, of which £77 million was taken as an exceptional charge this year

• Diageo expanded its presence in faster growing markets: a controlling stake in Serengeti Breweries in Tanzania, an equity stake in Halico in Vietnam, the acquisition of Mey Icki in Turkey, an additional investment in ShuiJingFang in China and a controlling stake in Zacapa super premium rum, totalling £1.6 billion

Paul Walsh, Diageo chief executive said: "Diageo is a strong business as these results show. Our leading brands and superior routes to market have delivered volume growth, positive price/mix, gross margin expansion and strong cash flow. We have strengthened the business, investing more behind our brands and in our routes to market and we have deepened our leading brand and market positions in the fastest growing markets of the world. In addition we have implemented changes to drive further operational efficiencies.

“While Diageo is not immune from a fragile global economy, this is a strong platform. It is the basis of our medium term outlook for average organic top line growth of 6%, organic operating margin improvement, with the first 200 basis points achieved in the next three years, and double digit eps growth. Achievement of these aims would underpin even stronger dividend growth."

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