Spirit brands drive Diageo profit growth

By Neil Merrett

- Last updated on GMT

Related tags Cent Diageo

Diageo today forecast organic operating profit will increase
by nine per cent in the current financial year after posting
strong gains across the majority of its big brands, including

Recent difficulties for sales of the dark beer in its spiritual homeland of Ireland, had led to speculation in the press that the company would move to offload the core-brand. However, group chief executive Paul Walsh told the UK media that the company had no plans to sell Guinness off, as it continues to post strong growth internationally. The comments follow Diageo's announcement that it has lifted organic revenue for the full year by seven per cent to £7.4bn (€10.9bn), according to preliminary results released today. Operating profit underwent a nine per cent organic increase to £2.1bn (€3bn), with margins up a percentage point to 29 per cent for the period ending 30 June. Sales of the group's spirits brands, particularly in terms of Scotch whisky, was the key contributor for the growth, the company said Walsh said that besides spirits, brands like Guinness had also benefited from the companies global presence, offsetting declines in more established markets. "Guinness grew despite the impact of weak beer markets in Great Britain and Ireland as a result of double digit growth in International on the back of the Guinness Greatness campaign in Africa,"​ he stated. "Captain Morgan is primarily a North American brand but strong performance in Europe delivered 10 per cent of the brand's growth this year." ​ Walsh added that its Buchanans brand had also recorded market share increases in emerging markets like Latin America, due to strong demand in the region for Scotch products. Of its regional performances, in North America, Diageo posted a seven per cent organic sales increase to £2.4bn. Operating profit for the region was up by five per cent in organic terms to £364m. The company attributed this growth to increased pricing for its goods and an improved portfolio of top-line products. The Smirnoff vodka and Baileys brands posted double digit sales growth in the division reflecting the company's 0.6 percentage point share gain of the US spirits market. Organic operating margins for the segment improved by 1.6 percentage points, the company added. In Europe, net sales were down one per cent in reported terms to £2.42bn as the company's margins were hit by strong declines in the ready-to-drink segment. Declining sales of its Smirnoff Ice product in Britain, Germany and France, led to a 12 per cent decline it net sales for the segment. Diageo said that an improved second half performance in markets such as Ireland, Britain and Spain drove sales gains of four per cent. Johhny Walker and Bailey's also posted strong growth in the emerging Russian market, the company added. Net sales were up by 18 per cent to 1.6bn on an organic basis, for Diageo's International division. Organic operating profit increased by 19 per cent to £499m. The company said it had profited from its operations throughout the entire region, with Guinness and Baileys' the predominant driver for growth during the period. Net sales of the Irish tipple rose 15 per cent throughout the group's key markets in Africa, while the launch of the Bailey's flavours brands, led to a 21 per cent improvement in revenue for the product. Significant sales growth for the company's Johhny Walker whisky, and improved share gains in several key markets, were highlighted by the group for driving a 13 per cent revenue increase to £840m in its Asia Pacific division. Organic operating profit rose seven per cent to £196m.

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