Diageo flat lines as 'emerging markets' sink further

31 July, 2014

Diageo has blamed “weakness in emerging market economies” for its 0.4% net sales growth in the 2013/2014 financial year.

CEO Ivan Menezes, who will hold a press conference in London later today to take questions on Diageo’s performance for the year ending June 30 2014, said the business had “faced macroeconomic and market specific challenges that have impacted top line performance”.

Asia Pacific suffered the most of Diageo’s regions, with volumes -5%, net sales -7% and profit -13%.

Diageo’s sub-region of Greater China dropped 20% in volumes, 31% in net sales and 33% in profits, after Shui Jing Fang felt the effects of China’s anti-extravagance measures and because of weakness in the scotch category.

Driven by de-stocking in Thailand, South East Asia fell 25% in volumes, 19% in net sales and 25% in profit.

Menezes, who has been CEO of Diageo for a year, said: “Emerging market weakness, often currency related, but also including some specific issues, such as the anti extravagance measures in China, has led to weaker top line growth.”

India and travel retail provided better news for sales in the region with double digit growth.

Western European markets look to have stabilised for Diageo, with flat results reported for volume, net sales and profits. Latin America and the Caribbean was steady (volume: -1%, net sales +2%, profit +3%) and Africa, Eastern Europe and Turkey showed mixed results (volume-5%, net sales +1%, profits 0%).

North America though, continues to show growth, delivering “top-line growth and significant margin expansion”, said Menezes.

Though volumes were down 1% in the region, driven by Smirnoff declines in the US, net sales were up 3% and profit up 8%, thanks to price increases and strong performances from Diageo’s reserve brands.

Of Diageo’s brands, scotch whiskies faired worst, with Johnnie Walker volumes -6%, J&B -7%, Buchanan’s -13% and Windsor -5%. While Bulleit +66%, Don Julio +27%, Captain Morgan’s +6% and Bushmills +8%, were the portfolio’s strongest performers.

Menezes added: “We have gained share and expanded margin while continuing to invest in our brands, our markets and our people to create a stronger business that will deliver on the long term growth opportunities of this attractive industry.

"When I became CEO a year ago I aligned the business behind the key performance drivers which will deliver our strategy. We have made good progress.

"Reserve has performed strongly; innovation has driven incremental sales in all regions; route to consumer initiatives have been embedded across a number of markets with more to follow in fiscal 15; ruthless focus on driving out cost has driven margin improvement and we have reshaped the organisation and enhanced skills and capability across the whole team at Diageo.

"We have made progress in accelerating the performance of our premium core brands but these brands have been under pressure given the environment this year, although we have delivered share gains in a number of markets.” 

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