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Diageo profits boosted by emerging market growth

By Helen Glaberson, 25-Aug-2011

Related topics: Manufacturers, Diageo

Spirits giant Diageo posted a 17 per cent rise in annual revenue, fuelled by strong growth in emerging markets such as Latin America, Africa and Asia.

The firm said it is continuing to invest in such markets, expecting them to contribute up to 50 per cent of net sales by 2015.

Diageo has recently spread its footprint in developing regions through investments totalling £1.6bn. The most recent being completion of Diageo’s acquisition of Turkish spirits producer Mey Icki yesterday.

Diageo’s net profit for the year ending June 30, rose to £1.9bn (€2.1bn) from £1.63bn the year previous.

Despite its overall profit gain, the UK firm said it continued to struggle in mature economies such as North America, and European countries such as Greece, Ireland and Spain.

Full-year sales in Diageo’s international and Asia Pacific divisions rose 13 per cent and 9 per cent respectively, whereas European sales fell by 3 per cent.

North America sales edged up 3 per cent, driven by the growth of spirits, despite losing share due to competition in vodka and rum.

Expanding presence

Chief Executive Paul Walsh said although the company was not immune from a fragile global economy, it was holding strong.

He said the group was looking to grow underlying sales by six per cent, improve margins and see double digit percentage earning growth in the medium term.

Heineken profit dip

Results were not so bright for European brewer Heineken yesterday who warned that weak consumer sentiment and a damp summer would cancel out the year’s profit growth.

According to Reuters, analysts said Diageo was less dependent on weather and gained from strong emerging markets.

In its first half results, Heineken posted a 14 per cent fall in net profits from €700m to €605m a year earlier, when the firm made an ‘exceptional’ gain in 2011 from divestment and restructuring charges.

Other beverage giants such as Anheuser-Busch, SABMiller and Carlsberg have recently warned of the increasing pressure to generate growth from emerging markets as demand dwindles in more mature markets.