Diageo growth slowed by emerging markets

30 January, 2014
Diageo brands

Diageo’s sales volume declined in each of its global regions during the second half of 2013, while net sales slowed to +1.8%, impacted by downtrading in Asia-Pacific.

Diageo said emerging markets only increased 1.3% during the period, partly because of weakness in baijiu in China and beer declines in Nigeria.

Split down by region, the results for the half-year ended December 31  2013 were as follows:

-North America declined 2% by volume but increased 5% in net sales

- Western Europe dropped 2% by volume and 1% in net sales

- Africa, Eastern Europe and Turkey fell by 4% by volume but grew 2% in net sales

- Latin America and Caribbean dropped 2% in volumes, but was up 8% in net sales.

-Asia Pacific saw a 4% decline by volume and a 6% decline in net sales.

While volumes were down across the board, Diageo pointed to growth in super and ultra premium brands, with reserve brands up 18.5%.

The group also said ‘delayering’ and operating efficiencies would deliver £200m of savings per year from June 2017, which would fund future investments.

Ivan Menezes, chief executive of Diageo said: “We have continued to demonstrate the strength of our broad portfolio and diverse global business in a period which saw a more challenging emerging market environment. Sustained performance in the US and improved performance in Western Europe enabled Diageo to absorb the current challenges in some of our emerging markets. We reacted quickly to the changing emerging market environment, reducing inventory levels in several key markets, which led to a weaker Q2, and tightly managing our cost base to deliver improved operating margins in line with our expectations. We continued to invest in the business increasing marketing spend ahead of net sales growth and keeping our strong focus on innovation and route to consumer improvements.

"In the first half the organisation has aligned behind the six key performance drivers which I identified when I was appointed CEO; premium core brands, reserve, innovation, route to consumer, cost and talent. This clarity of focus at a market level enables me to take the changes I have already made to the operating model to the next level. Over the next two months we will set out detailed plans to simplify our processes and de-layer our organisation. This will create a more agile, accountable and effective organisation to deliver our performance ambition. I expect this to deliver cost savings of £200 million a year by the end of fiscal 2017.

We do expect some top line improvement in the second half and our focus across the business on the six key performance drivers means that even though some markets may remain challenging, this business is in good shape for the medium and long term and we remain committed to achieving our performance ambition.”

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