Diageo success spurred by new market growth

Kasmira Jefford
Follow Kasmira
DIAGEO, the drinks giant, yesterday reported an 11 per cent hike in full-year profits after its exposure to fast-growing markets in Africa, Asia and Latin America helped offset weaker sales in Europe.

The maker of Johnnie Walker and Smirnoff Vodka said it made an operating profit of £3.2bn in the year to 30 June, while overall net sales grew six per cent to £10.8bn, driven by growth in emerging markets which now account for almost 40 per cent of Diageo’s business.

In Europe challenging economic conditions, particularly in Spain, Greece and Italy, dragged sales down by one per cent, with UK net sales down two per cent.

Nevertheless Russia, Eastern Europe and Turkey posted stronger sales driven by scotch and the group said its recent acquisition of Turkey’s Mey Icki raki brand would help serve as a further platform for growth.

Diageo has been in talks to buy Mexican tequila maker Jose Cuervo, from its owners, the Beckmann family. But yesterday chief executive Paul Walsh hinted that the two sides remained at a stalemate.

“We would love to deepen our relationship with the brand and with the family but it takes both parties to want to do that and the right set of economics that works for shareholders and the family”, Walsh said.

Diageo distributes the Mexican distiller’s Jose Cuervo brand but wants to move toward full control of the family-owned company ahead of the distribution agreement’s expiration next year.

Diageo has a war chest of £1.6bn in cash but Walsh said the group would not be pressured into “frittering it away”. He also shrugged off reports that it is in talks to buy India’s United Spirits, saying “there is dialogue with everyone in the industry”.

The largest producer of Scotch whisky, Diageo announced earlier this year plans to invest over £1bn in the drink over the next five years to meet growing demand from emerging markets. Johnny Walker delivered “exceptional” sales of 15 per cent during the period.

The company recommended an eight per cent increase in the final dividend to 26.9p, giving a total dividend of 43.5p.