Bottoms up at Diageo as sales rise 5%

The news will come as a relief to new chief executive Ivan Menezes - although sales in emerging markets could have been better.

by Emma Haslett
Last Updated: 12 Aug 2013
It's been less than a month since new Diageo chief executive Ivan Menezes took over, so we'd imagine he was grateful for preliminary results posted by the drinks manufacturer, which owns brands such as Johnny Walker, Guinness and Smirnoff vodka, this morning. The company said sales were up, with net growth of 5%, which helped to drive operating profit up 8%.

Admittedly, Diageo put 4% of that sales growth down to margins - rather than buying more booze, drinkers are going more upmarket ('the consumers' wish to premiumise', as Diageo North America Larry Schwartz very Americanly described the phenomenon). That could be a cause for concern, but Menezes insists it's because premium is the market Diageo wants to focus on. And to be fair, if customers are drinking less, more expensive booze, that's got to be better for all concerned. Particularly drinkers' livers.

Following a spate of acquisitions a couple of years ago (including Shuijingfang, brewer of a Chinese spirit called baijiu, in which Diageo upped its stake over the year from 21% to 37%), emerging markets now contribute 42% of net sales - in the year to the end of June, they added £233m to the business, with 11% sales growth. Compare that with the US, where sales grew by a comparatively marginal 5%.

The only fly in the whisky is that the company is currently two years into a three-year plan to grow sales by 6% or more. Menezes acknowledged that had it not been for lower than expected sales in Nigeria, plus a crackdown on government entertaining in China, emerging market growth could have been higher.

Still: he seemed convinced emerging markets are where it's at.

'The investments we have made to enhance our routes to market in Africa, Latin America and Eastern Europe have driven strong growth,' he said.

'This year we have again made a strong business stronger and we remain on track to deliver our medium term guidance.'

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