Diageo offers bleak outlook

City A.M. Reporter
DIAGEO, the world’s biggest spirits group, expects slightly higher profits growth this year driven by developing markets but a cautious outlook hit its shares after meeting forecasts for annual earnings.

The London-based maker of Smirnoff vodka, Johnnie Walker whisky and Guinness beer saw strong growth in Latin America, Africa and Asia, which account for a third of group earnings, while demand in Europe and North America was still weak.

Chief executive Paul Walsh said the group had seen a strong performance in the first six months of 2010 and now expects higher growth this year than the two per cent rise in underlying operating profit seen in the reported year to June 2010.

He added that the performance, “gives us confidence that in fiscal 2011 we well be able to improve on the organic operating profit growth we have delivered this year”.

But analysts said the outlook was cautious with no share buyback programme announced and the rise in the dividend was very modest.

Diageo’s finance director Nick Rose admitted he was being cautious but insisted that he was ready for any uptick in developed markets in 2011 with marketing spend set to rise above sales growth. He said Diageo sees input costs flat this year and is well hedged on grain.

“We are a little cautious over our core developed markets in Europe and North America
but we feel good about our International and Asia Pacific regions,” he said.

The group posted pre-exceptional earnings up 13 per cent at 72p a share for the year to the end of June, compared with a consensus of 72.5p.

The final dividend rose six per cent to 23.5p a share, and the group said it would now look to increase dividend payments by six per cent rather than the five per cent it said previously.