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Diageo Benefits From Global Strength

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Diageo Benefits From Global Strength

Diageo Benefits From Global Strength
August 01
13:30 2013

Diageo has posted a 5% growth in net sales to £11.4 billion for the year ended 30 June 2013 with operating profit (before exceptionals) growth of 8% to £3.53 billion, driven by 0.8 percentage points of margin expansion.

Marketing investment was increased by 5% during the year to 15.7% of net sales and focused on Diageo’s strategic brands.

Diageo performed strongly in North America with net sales up 5% and operating profit up 9%. In emerging markets, which now account for 42% of Diageo’s business, net sales growth of 11% was achieved with acquisitions adding £233 million. Emerging markets operating profit rose 18%, as increased scale led to operating margin expansion.

Free cash flow was £1.5 billion, after making a £400 million contribution to the UK pension scheme.

Amongst Diageo’s strategfic brands, Johnnie Walker Scotch whisky was a star performer. It is Diageo’s biggest brand and a further million cases of sales was added during the year. Indeed, Johnnie Walker is now a 20 million case brand, with nearly 10 million cases added over the past ten years and over £1 billion of sales.

Ivan Menezes, chief executive of Diageo, comments: “These results reflect Diageo’s strengths. We have delivered 5% net sales growth reflecting the strength of our US spirits business and continued double digit growth in the emerging markets, despite weakness in some markets. Price increases in each region, positive mix in North America and Latin America and the rigour we have in managing our cost of production and controlling our overheads drove significant expansion in operating margin.”

He continues: “The effectiveness of our marketing campaigns remains a competitive advantage for us and this year we have seen these campaigns extend the leadership of our brands in many markets during the year. This has been a key driver of our performance in scotch, our biggest and most profitable category, especially for Johnnie Walker which is now a 20 million case brand. Innovation is driving growth in every region, with our biggest launches in US spirits where we continue to lead the innovation agenda in the industry. Elsewhere, the investments we have made to enhance our routes to market in Africa, Latin America and Eastern Europe have driven strong growth.”

While Diageo’s focus on North America and the emerging markets will drive margin, the drinks group is also seeking to improve its performance in Western Europe, which is a £2 billion business with a 30% margin. Although some markets in the region are characterised by a tough trading environment, in other markets the consumer dynamics are strong.

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