Tag Archive | "Diageo"

Strong Full Year Performance From Diageo


Strong performances in emerging markets have helped Diageo to achieve organic growth of 6% in net sales to £10.76 billion and 9% in operating profit before exceptional items to £3.20 billion for the year ended 30 June 2012, with the margin improving by 60 basis points. Free cash flow was £1.6 billion.

During the year, Diageo increased marketing investment by 8%, up 30 basis points to 15.8% of net sales, focusing on strategic brands and the fastest growing markets.

Emerging markets, which now account for almost 40% of Diageo’s business, grew net sales  by15% and operating profit by 23%. Acquisitions in faster growing markets, primarily Mey İçki inTurkey, added £320 million of net sales and £82 million of operating profit after transaction and integration costs.

During the year Diageo increased its ownership stake in Shuijingfang and Halico and announced an agreement to acquire the Ypioca brand inBrazil. The drinks group is also planning to invest a further £1 billion to expand its Scotch whisky production capacity

“Diageo is a strong business, getting stronger,” says Paul Walsh, chief executive of Diageo. “We have increased our presence in the faster growing markets of the world, through both acquisitions and strong organic growth. We have enhanced our leading brand positions globally, through effective marketing and industry leading innovation and we have strengthened our routes to market. 6% organic top line growth, 9% operating profit growth and 60 basis points of margin expansion is a strong performance and demonstrates our commitment to delivering efficient growth.”

He adds “In F12, we have continued to invest to ensure this business is well positioned for the future. Our confidence in the achievement of our medium term guidance is underscored by the 8% recommended increase in our final dividend.”

 

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Guinness Launches New Global Advert For Arthur’s Day


Diageo, owners of Guinness, has unveiled a new global advert to launch the iconic beer brand’s annual Arthur’s Day celebrations. The new creative entitled ‘Paint The Town Black’ is being previewed exclusively on the Guinness Facebook page from 16 August and have its global TV premiere inIrelandon the 19 August.

The ad itself is inspired by the spirit of Arthur’s Day, an annual music event since 2009 that celebrates the founder of Guinness, Arthur Guinness, a man made of more. In its fourth year, 55 different countries around the world will embrace Arthur’s Day. The events take place on Thursday 27 September.

Paint The Town Black, provides fans of ‘the black stuff’ with another highly anticipated and cinematic masterpiece. Created by Saatchi & Saatchi and director Daniel Wolfe, Guinness’s latest advert sees a sleepy village prepare for an extraordinary celebration, as people come together and begin to paint everything with a black distinctive liquid, before raising a pint to Arthur Guinness.

Guinness senior brand manager Chris Wooff says: “We wanted to create an advert that brought to life the remarkable spirit of Arthur’s Day and encouraged people from around the world to be a part of the annual celebrations by raising a toast to the man behind our iconic pint, Arthur Guinness.”

Arthur’s Day has seen Guinness fans all over the world enjoy huge international acts in small pubs and intimate venues. In contrast it has also hosted remarkable concerts, which have provided tens of thousands of Guinness fans with the opportunity to see their favourite bands live on stage. This year there will be performances from the likes ofTinie Tempah,Texas, Ellie Goulding, Example, Mika, Professor Green, Fatboy Slim and Amy Macdonald.

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Diageo Launches Chinese White Spirit Shui Jing Fang into GB Market


Diageo has launched Chinese white spirit brand, Shui Jing Fang, into the GB domestic market. Great Britain is the first European market to stock Shui Jing Fang as part of Diageo’s strategy to build it as an internationally recognised brand.

Shui Jing Fang will be distributed throughout the UK by SeeWoo, a leading specialist Oriental food wholesaler headquartered in the UK. In addition to the launch in Great Britain, Diageo plans to introduce Shui Jing Fang into other northern European markets later in 2012.

Andrew Cowan, country director Diageo GB, says: “This launch represents a milestone in the journey of Shui Jing Fang to becoming an international brand and we look forward to working with SeeWoo to build the brand with British consumers.”

Having gained a controlling stake in Sichuan Chengdu Quanxing Group, the largest shareholder of Sichuan Shuijingfang in 2011, Diageo is the only international company to have invested at scale in Chinese white spirits. This stake in Quanxing gives Diageo the opportunity to participate in the super premium Chinese white spirits segment, one of the largest, fastest growing spirits segments in the world.

Shui Jing Fang will initially be aimed at Chinese consumers in Britain, but the ‘baijiu’ segment is continuing to gain popularity in overseas markets due to rising demand from Chinese travelers and Western businessmen keen to do business in China.

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Diageo Tops Food and Beverage Sector in FTSE4GOOD Index


Diageo has further strengthened its sustainability credentials by topping the food and beverage sector in the FTSE4GOOD index 2012. The index, which is designed to objectively measure the performance of companies that meet globally recognised corporate responsibility standards, saw Diageo’s score of 4.8 out of 5 beat a prestigious group of companies from the food and beverage sector including Unilever, Coca-Cola, Heineken and Nestle. Diageo was also jointly named as the leadingUKcompany in the overall rankings and placed joint second globally behind Vivendi.

Carolyn Panzer, director of corporate social responsibility at Diageo, comments: “This recognition by the investment community reflects the clear progress Diageo has made with our sustainability and responsibility strategy. Initiatives such as our Water for Life Programme in Africa, which works to extend access to clean water for 1 million new people in Africa every year to 2015, Learning for Life which has trained approximately 60,000 students with employment skills in Latin America, and Champions for change which supports social entrepreneurship in Asia, are a key examples of how we are working to embed sustainability at the heart of the business.”

Diageo has also committed to a set of ambitious environmental targets for 2015 including improving water efficiency by 30%, reducing water wasted at water stressed sites by 50%, reducing carbon dioxide emissions by 50%, eliminating waste sent to landfill, reducing the polluting power of wastewater by 60% and making all its packaging 100% recyclable.

To compile the FTSE4GOOD index, FTSE looks into a company’s corporate responsibility performance. The analysis covers environmental indicators such as climate change and environmental management; social indicators such as human and labour rights and supply chain labour standards as well as governance (countering bribery, corporate governance).

Now in its 11th year, FTSE4GOOD was launched in 2001 and tracks over 2,300 public companies. The selection criteria for the index reflect a broad consensus on what constitutes good corporate responsibility practice globally. Using a widespread market consultation process, the criteria are regularly revised to ensure that they continue to reflect standards of responsible business practice, and developments in socially responsible investment as they evolve.

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Diageo Gains Regulatory Approval For £630 Million Chinese Acquisition


Diageo has received Chinese regulatory clearance to acquire the outstanding shares of Sichuan Shuijingfang Co for £630 million. ShuiJingFang is one of the largest super premium Chinese white spirits brand by volume in China. The company is listed on the Shanghai Stock Exchange.

Diageo made its first 43% investment in February 2007 and increased its shareholding to 49% in July 2008. It then increased its shareholding to 53% in July 2011. Since 2007, Diageo has begun distributing the ShuiJingFang portfolio across South East Asia, Korea, Australia and in the USA.

Super premium Chinese white spirits is one of the largest, fastest growing spirits segments in the world

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Diageo Planning £150 Million Scotch Whisky Project


Diageo is planning to develop new warehouse storage facilities for Scotch whisky at Cluny in Fife, costing in the region of £150 million. The world’s largest spirits producer is reported to be seeking permission from Fife Council to construct 46 warehouses for the maturation of Scotch whisky stocks in line with the continued expansion of production at its Cameronbridge distillery.

The proposed project, which would take about seven years to complete, is expected to generate 200 long-term construction jobs and around 40 operational posts.

‘‘I think sales are going to continue to grow over the next 12 years – that is how long it takes to make Johnnie Walker Black Label – and that means we need more warehouses,” comments Richard Bedford, director of grain distilling at Diageo. “We have not been out for detail design or spec or tendering yet but the estimated investment would be £150 million. That could easily be give or take £20-odd million as we don’t know the outcome for the detailed ground survey or the plant we would want to install.”

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Diageo Appoints Ivan Menezes as Chief Operating Officer


Diageo has appointed Ivan Menezes (pictured) as chief operating officer. Ivan Menezes has been promoted from his position as president Diageo North America and chairman of Diageo Asia Pacific and Diageo Latin America & Caribbean.

As chief operating officer, Ivan Menezes will lead Diageo’s operating businesses globally adding responsibility for Europe and Africa to his current responsibility forNorth America, Asia Pacific and Latin America & Caribbean. Nick Blazquez (president Africa), Gilbert Ghostine (president Asia Pacific), Randy Millian (president Latin America & Caribbean), Andrew Morgan (president Europe) and Larry Schwartz, who is concurrently appointed president North America, will report to Mr Menezes.

Reporting to chief executive Paul Walsh will be Ivan Menezes (chief operating officer), Deirdre Mahlan (chief financial officer), Andy Fennell (chief marketing officer), David Gosnell (president Global Supply and Procurement), Gareth Williams (human resources director), Tim Proctor (general counsel) and Paul Tunnacliffe (company secretary).

The appointment has prompted speculation that Ivan Menzies will be Paul Walsh’s successor as chief executive.

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Diageo Delivers Solid Interim Performance


Helped by strong growth in emerging markets and a recovery in some developed markets, Diageo has reported an 8% growth in operating profit before exceptionals to £1.87 billion on net sales up 8% to £5.76 billion for the six months ended 31st December 2011. Volume growth was 3% and organic net sales growth was 7%, driven by volume and price increases. Diageo achieved 9% organic growth in operating profit. Marketing was up 10% on an organic basis with 20% growth in emerging markets and 8% growth in North America

On the brands front, Johnnie Walker grew net sales by 15%, Smirnoff returned to growth, and global Guinness net sales grew 5% despite a 2% decline in Western Europe. The strongest performing categories were Scotch, up 14%, and vodka, up 13%, while Diageo’s beer brands delivered 7% organic net sales growth.

Paul Walsh, chief executive of Diageo.

“Diageo has delivered a solid and well balanced first half performance with 9% operating profit growth and 60 basis points of operating margin expansion,” comments Paul Walsh, chief executive of Diageo. “This is the result of the investments we have made to build our brands, deepen our routes to market in the faster growing markets of the world, enhance our leadership in US spirits and create an integrated organisation in Western Europe. In an uncertain economic environment we have again demonstrated the benefits of our geographic diversity and brand range.”

Diageo increased net sales by 18% and operating profit by 23% in emerging markets, which now account for almost 40% of the drinks group’s business. Its performance also improved in developed markets where Diageo delivered top line growth and operating margin expansion while marketing as a percent of net sales increased.

The performance of Diageo’s business in Western Europereflected the variation in the economies by country. The stronger economies of Germany and France delivered double digit net sales growth. In the weaker economies of Spain, Greece and Ireland, net sales declined. In Great Britain net sales also declined in line with a strategy to reduce the depth of promotions, that delivered 4 percentage points of positive price/mix. Overall volume performance was flattered by the sales buy-in in France ahead of an excise increase in January 2012 and the lapping of a destock in Spain in 2010.

With each market growing double digit net sales, strong performance in Russia and Eastern Europe was driven by Scotch, with Johnnie Walker net sales up 22%, and White Horse, the number one whisky in Russia, up 15% on the back of the first ever image campaign for the brand.

Looking ahead, Paul Walsh adds: “We are cautious as to the consumer and economic trends we will face in 2012 but these first half results have positioned us well and they have demonstrated that Diageo has the brands, the routes to market and the people to deliver our medium term guidance. The increase of 7% in the interim dividend signals our confidence that we are making a strong business stronger.”

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Diageo to Invest €153 Million in Dublin Brewery


Diageo is to make a capital investment of Eur153 million in a brewing centre of excellence at its famous St James’s Gate site in Dublin. The decision follows a major review looking at how Diageo can best ensure the long term sustainability of its brewing operations in Ireland.

The capital investment programme will result in a rejuvenation of the historic St James’s Gate Brewery, resulting in the creation of 300 construction jobs during the building of a new brewhouse, which will get underway, subject to planning permission, in the first half of this year. The plans for implementation at St James’s Gate over the next two years will be an important part of securing the long term competitiveness of Diageo’s beer business and by concentrating all brewing activity on the St James’s Gate site will underpin the company’s commitment to Ireland.

David Gosnell, president of Diageo Global Supply, comments: “The decision to consolidate to the St James’ Gate site is fundamental to delivering the competitiveness necessary for the long term sustainability of our brewing in Ireland. This is a significant investment and an expression of confidence by Diageo in our Irish operations.”

The scope of the proposed brewery development includes (subject to planning permission):

* A new brewhouse facility on the Northlands of St James’s Gate (Victoria Quay).

* The new brewhouse volume will have a capacity of approximately 7 million hectolitres.

*A new grain intake building and associated silos.

* An extension of the existing fermentation plant to the southwest of the new brewery.

* Extension to utilities generation and distribution.

The centralisation of all Diageo Irish brewing activities at one site, which was first announced in 2008, will entail the ceasing of brewing activities at Kilkenny and Dundalk. Originally, the two breweries were due to close by the end of 2012 but this has been deferred. These sites are now scheduled for closure in July 2013 (Dundalk) and December 2013 (Kilkenny) subject to planning and construction timelines at St James’s Gate.

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Diageo Completes $225 Million Acquisition of Ethiopian Brewer


Diageo has completed the acquisition of Meta Brewery, a leading beer company in Ethiopia, for a cash consideration of $225 million, subject to customary post completion adjustments. The acquisition concludes a competitive tender process held by the Privatization and Public Enterprises Supervising Authority on behalf of the Government of Ethiopia.

The acquisition represents a key milestone in achieving Diageo’s strategy of participating at scale in beer and spirits in growth markets in Africa. Meta Brewery is the second largest beer company in Ethiopia with a volume share of approximately 15%. From its brewery near the Ethiopian capital Addis Ababa, it produces and distributes its flagship national lager brands Meta and Meta Premium.

“Over the past five years, Diageo has invested more than £1 billion in building its businesses in Africa, and we will continue to look at opportunities to expand our footprint, grow our brands and secure strong routes to market,” points out Nick Blazquez, president of Diageo Africa.

The acquisition of Meta Brewery will give Diageo direct access to the rapidly growing Ethiopian beer market, and will complement Diageo’s existing premium spirits business in the country. The beer market in Ethiopia is estimated to continue to grow at more than 10% per annum to 2015, driven by strong GDP growth and increased disposable incomes. Diageo currently markets its international premium spirits brands, including Johnnie Walker scotch whisky, Smirnoff vodka and Gordon’s gin, through its representative office in Addis Ababa.

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Diageo Opens £10 Million Cooperage in Scotland


Diageo has officially opened the first new cooperage to be built in Scotland for decades. The new Diageo Cambus Cooperage near Alloa has been custom designed in close co-operation with the company’s coopers, drawing on generations of skill, craft and experience and combining it with the state-of-the-art British engineering – never before used in a cooperage.

 

The new cooperage will craft around 250,000 casks each year – all of which will be used to mature Scotch whisky for Diageo’s world leading brands, such as Johnnie Walker, Bell’s and J&B Rare. The technology in the cooperage was developed by CI Logisitics, a Leicester-based engineering firm which works mainly with the car industry.

 

Richard Bedford, Diageo’s grain distilling director, who was responsible for the Cambus Cooperage project, says the increase in demand for Diageo’s world-leading Scotch whisky brands meant the new cooperage was a key part of the company’s overall investment programme for growing its production capacity in Scotland.

 

He comments: “The demand for Scotch whisky is growing around the world, particularly in the emerging markets of Asia and Latin America. To meet that increasing demand Diageo is investing in growing Scotch whisky production capacity acrossS cotland. That means we need more casks than ever before, so the new Cambus Cooperage is a key part of the future success of our Scotch whisky brands.”

 

Scotland is one of Diageo’s largest spirit supply centres responsible for producing nearly 50 million cases of leading brands of Scotch whisky and white spirits and over four million cases of ready-to-drink brands annually. Around 85% of Diageo’s brands produced in Scotland are sold overseas.

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Diageo Expands Global Partnership With Facebook


Diageo plans to step-up its multi-million dollar strategic partnership with Facebook, which will drive unprecedented levels of integration and joint business planning and experimentation between the two companies. The current relationship has seen Diageo enjoy strong return on advertising investment, with an initial study across five key brands in the US (Smirnoff, Captain Morgan, Baileys, Jose Cuervo Margaritas and Crown Royal) showing a 20% increase in sales as a result of Facebook activity. This 5:1 return has come off the back of Diageo’s brands growing their collective fan base from 3.5 million to 12 million in the past 12 months and Smirnoff becoming the number one beverage alcohol brand on Facebook worldwide.

 

Building on this collaboration, the new partnership agreement will focus on driving consumer engagement with a particular focus on emerging growth markets. Facebook will provide strategic consultancy to Diageo’s priority brands in its main creation hubs of New York, London, Amsterdam, Dublin, Sao Paulo and Singapore, ensuring the development of consumer participation programmes are social by design. Diageo and its roster of agencies will work closely with Facebook teams from concept development, through campaign creation to execution, ensuring that communities are built at scale and consumer advocacy is truly visible. Recognising the importance of emerging growth markets to Diageo’s business, Facebook has also established local account teams in Brazil and Singapore.

 

The two companies will work together to push the existing boundaries of social media through co-created experiments leveraging the full capability of the platform. Facebook will also provide metrics to help Diageo define ROI and performance across its priority brands.

 

Andy Fennell, chief marketing officer of Diageo, comments: “Facebook has been a natural fit for us from day one. Working in such close collaboration will allow us to really maximise consumer participation at scale in our campaigns, particularly in emerging markets. We are already seeing real value from our work in this space. Over 950 Diageo marketers around the world have now been trained in Facebook boot camps to build their social media capabilities and we are seeing significant returns on investment across a number of brands. We expect this new way of working to deliver even more commercial value for Diageo.”

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Emerging Markets Drive Sales and Profits at Diageo


Buoyed by strong growth in emerging markets, particularly by its Scotch whisky brands, Diageo has achieved 5% organic growth in both net sales to £9.94 billion and in operating profit before exceptionals to £2.88 billion for the year ended June 30th 2011.

 

Exceptional operating costs were £289 million for the year including a net charge of £111 million in respect of restructuring programmes. Group profit before taxation increased by 5.4% to £2.36 billion.

 

Three of Diageo’s four regions –North America, International and Asia Pacific – saw organic growth in net sales, operating profits and marketing spend. However, in Europe, net sales and operating profit fell by 3% and 7% respectively and marketing spend was down 4% on an organic basis.

 

“The very challenging trading environments of Spain and Greece are well understood and led to the overall decline in net sales for Europe this year. However, excluding these two markets, net sales in the region grew,” explains Andrew Morgan, president of Diageo Europe. “Strong performances from our Scotch and rum brands led to double digit organic net sales growth in Russia, Eastern Europe and Germany, while Great Britain, France, Benelux and Italywere resilient, with single digit growth. Throughout the year we focused our marketing spend on the biggest opportunities.”

 

Diageo is continuing to restructure its gloabl business to adapt to changing market requirements. In May, the company announced an operating review which is expected to reduce cost of goods and operating costs by approximately £80 million per annum by the end of fiscal 2013. The total cost of the changes which have been identified is expected to be £160 million, of which £77 million was taken as an exceptional charge this year.

 

Diageo also expanded its presence in faster growing markets during the year through a series of deals worth £1.6 billion, including taking a controlling stake in Serengeti Breweries inTanzania, an equity stake in Halico inVietnam, making additional investment in ShuiJingFang in China and the £1.3 billion acquisition of Mey Icki, the leading spirits company in Turkey.

 

“Our leading brands and superior routes to market have delivered volume growth, positive price/mix, gross margin expansion and strong cash flow. We have strengthened the business, investing more behind our brands and in our routes to market and we have deepened our leading brand and market positions in the fastest growing markets of the world,” comments Paul Walsh, chief executive of Diageo. “In addition we have implemented changes to drive further operational efficiencies. While Diageo is not immune from a fragile global economy, this is a strong platform. It is the basis of our medium term outlook for average organic top line growth of 6%, organic operating margin improvement, with the first 200 basis points achieved in the next three years, and double digit eps growth.”

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Diageo Completes Acquisition of Mey Icki


Having received the necessary regulatory clearances, Diageo has completed its £1.3 billion acquisition of Mey Icki, the leading spirits company inTurkey. In the financial year ended 31 December 2010 Mey Icki had net sales of £300 million and EBIT of £120 million. It is the clear market leader in Raki, the biggest spirits category in Turkey, and has a leading position in vodka. In addition the company has an extensive nationwide sales and distribution network.

 

The Turkish Competition Authority clearance is conditional upon the subsequent disposal of the Mey Icki brands Hare liqueur and Maestro gin. Diageo expects to complete these disposals within its current financial year.

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Diageo to Pay $16 Million to Settle Bribery Lawsuit


Diageo has agreed to pay $16m to settle an investigation by the US Securities and Exchange Commission (SEC) into bribery allegations in South Korea, India and Thailand. The SEC claims that Diageo’s subsidiaries in India, South Korea and Thailand paid more than $2.7 million in bribes from 2003 to 2009 in order to gain sales and tax benefits. Diageo made about $11m in profits from these actions, according to the SEC.

“For years, Diageo’s subsidiaries made hundreds of illicit payments to foreign government officials,” explains Scott Friestad, associate director in the SEC’s enforcement division. “As a result of Diageo’s lax oversight and deficient controls, the subsidiaries routinely used third parties, inflated invoices, and other deceptive devices to disguise the true nature of the payments.”

Diageo has agreed to settle the Foreign Corrupt Practices Act (FCPA) lawsuit without admitting or denying wrongdoing.

Under the settlement Diageo will pay $13.4m to the SEC in disgorgement of profits and pre-judgment interest, plus a $3m penalty to the SEC. Diageo has also agreed to cease and desist from committing any further violations of the books and records and internal controls provisions of the FCPA.

Diageo says it takes the SEC’s findings seriously and regrets the matter. The global drinks group says that its systems and controls have been enhanced in an effort to prevent the future occurrence of such issues and to reinforce, everywhere the company operates, a culture of compliance and commitment to the principles embodied in Diageo’s Code of Business Conduct.

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Diageo and SABMiller End Brewing and Distribution Agreement


Diageo, through its subsidiary East African Breweries, has agreed to purchase SABMiller’s 20% shareholding in Kenya Breweries for $225m. The deal is subject to EAB disposing of its 20% shareholding in Tanzania Breweries, which is majority owned by SABMiller, through a public offer.

The two deals effectively end a brewing and distribution agreement between Diageo and SABMiller in Kenya and Tanzania which dates back to 2002.

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European Region Still in Decline at Diageo


Greater focus on its priority brands and increased investment in emerging markets has allowed Diageo to deliver 7% organic net sales growth in its third quarter, and to increase sales by 5% on an organic basis and volume by 2% in the nine months ended March 31st 2011, compared to the comparable period last year. However, while its regional markets of North America (3%), Asia Pacific (9%) and International (!4%) all registered organic net sales growth, Europe declined by 3%.

On a reported basis net sales grew by 3% in the quarter ended 31 March 2011 and by 2% in the nine months ended 31 March 2011, against the comparable prior period in each case.

Paul Walsh, chief executive of Diageo.

‘Trading in the third quarter was in line with our expectations that the second half would be stronger than the first,” comments Paul Walsh, chief executive of Diageo. “In North America consumer trends are improving, albeit modestly, and Diageo’s scotch, vodka and tequila brands performed strongly in the quarter. Better mix and lower discounts offset volume decline to drive top line growth. Overall trading in Europe continues to be challenging although in the quarter stronger price/mix in Great Britain and Russia offset weaker price/mix in Ireland and Greece and a deterioration of the on trade in Spain. Further improvement in price/mix in both International and Asia Pacific in the quarter were driven by the continuing strength of our scotch brands especially around Chinese new year, improving trends for our beer brands in Africa, especially in Nigeria, and stronger growth in South Africa and Australia.”

He adds: ‘This overall improving trend is the result of our focus on our priority brands and our strengths in market. We remain confident that our up weighted marketing investment together with the increased investment we have made in emerging markets in the year will continue to deliver improving performance.’

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Diageo to Expand Islay Distillery


Diageo, the world’s largest producer of Scotch whisky, is to invest £3.5m to expand and upgrade its Caol Ila distillery on the Sound of Islay. Production at the site will be increased by 700,000 litres a year.

Established in 1846, the distillery currently produces 5.7 million litres of whisky every year, with the majority used in Diageo’s blended whisky brands. The upgrade is scheduled to commence in June and take six months to complete.

“An investment of this scale is fantastic for the local economy and it signals Diageo’s deep-rooted commitment to the Islay whisky industry,” says Kevin Sutherland, senior site manager on Islay. “Caol Ila is a wonderful distillery of which we are very proud and I am delighted we are going to be able to produce even more fantastic single malt as well as contributing to the growth of Johnnie Walker and Diageo’s other leading global Scotch brands.”

To meet growing international demand for its Scotch whisky brands, Diageo has already invested £600m to expand production capacity over the past six years, including £40m on The Roseisle distillery (pictured) in Speyside, the first malt distillery of scale to be opened in Scotland in over 30 years.

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Diageo Brands Continue to Lead Impact Top 100 Premium Spirits List


In the latest Impact Databank Top 100 ranking, Diageo has retained eight spirit brands among the top 20 premium spirits brands in the world by volume, and seven in the top 20 spirits brands by value, more than any other drinks company.

Diageo was in the top spots in both league tables once again. Johnnie Walker was ranked as the number one spirit in the world by value, and number three premium spirit by volume, with an estimated 16.2 million nine-litre equivalent cases sold in calendar 2010.

Smirnoff retained its position as the number one premium spirit in the world by volume, with an estimated volume of 24.8 million nine-litre equivalent cases, and was also ranked number two by value, as in last year’s league tables.

Other brands in the Diageo portfolio in the Impact Databank rankings include: Captain Morgan, Jose Cuervo, Baileys, Crown Royal and J&B in the top 20 premium spirits by value and volume. Gordon’s Gin also remained in the top 20 premium spirits by volume.

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Diageo to Acquire Turkey’s Leading Spirits Company For £1.3 Billion


Diageo has reached agreement to acquire Mey Icki, the leading spirits company in Turkey, for an enterprise value of £1.3b from investment firm TPG Capital and Actera. The transaction is expected to complete in the second half of calendar 2011, subject to regulatory clearances.

Paul Walsh, chief executive of Diageo.

Mey Icki is the leading spirits producer and distributor in Turkey. In the financial year ended 31st December 2010 the company had net sales of £300m and EBIT of £120m. It is the clear market leader in Raki, the biggest spirits category in Turkey, and has a leading position in vodka. In addition the company has an extensive nationwide sales and distribution network.

Turkey is a substantial fast growing economy with a growing and increasingly affluent middle class and consumer spending is forecast to be twice the rate of GDP growth. The acquisition of the leading spirits company in this very attractive emerging market will allow Diageo to accelerate the growth of its complementary international spirits brands with increased access through Mey Icki’s strong distribution network and customer relationships in Turkey. Mey Icki will be consolidated as part of Diageo Europe and will continue to operate under the current management team.

“This investment represents the continuation of our strategy to increase Diageo’s presence in those emerging markets, such as China and Vietnam, which have a rapidly growing middle class,” says Paul Walsh, chief executive of Diageo.

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Europe Remains Weak Spot For Diageo


Despite a 3% decline in Europe, Diageo achieved organic net sales growth of 4% to £5.32b for the six months ended December 31st 2010 and 2% organic operating profit growth (before exceptional items) to £1.73b. Diageo reported a 12% rise in operating profit to £1.72b for the period and profit before tax was £1.61b, against £1.39b in the first half of 2010.

According to Diageo, the overall economic and consumer environment in Europe continues to be weak. In Greece and Spain, the financial crisis has led to a further decline in consumer confidence and to trade destocking. In Ireland, the ongoing contraction of the on-trade has led to a decline in Diageo’s predominantly beer business. In Great Britain, net sales growth was driven by the growth of wine which reduced margins as did the very competitive pricing environment on spirits. In contrast, the consumer recovery in Russia and a bounce-back in Eastern Europe, aided by some wholesaler restocking, led to strong double digit growth in these emerging markets.

Paul Walsh, chief executive of Diageo.

Europe accounts for almost a third of group profit. The key markets of Spain, Great Britain and Ireland generate about half of the region’s sales for Diageo.

“Momentum is building in our business. Our top line performance was stronger and price/mix improved. We have increased marketing spend significantly, up 10%, but in a very focused way. 35% of the increase was behind strategic brands in US spirits to build the brand equity as we move away from promotional support and over 60% of the increase was on our brands in the faster growing emerging markets,” comments Paul Walsh, chief executive of Diageo. “Despite the economic weakness in much of Europe, our first half performance gives me increased confidence that we will improve on the organic operating profit growth we delivered in fiscal 2010.” Diageo’s organic operating profit growth was 2% in 2010.

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Diageo Expands in Vietnam


Diageo, the world’s leading premium drinks business, has entered into a strategic partnership agreement with Halico, the largest domestic branded spirits producer in Vietnam. Diageo is acquiring a 23.6% stake in Halico for about £33m.

The strategic partnership agreement with Halico represents a significant move by Diageo into the fast growing Vietnamese branded spirits sector. Halico is well-positioned to benefit from this growth given its significant distribution scale and recent investment in a new state-of-the-art production facility.

As Halico’s strategic partner, Diageo will assist Halico in enhancing its capabilities across a range of functions, including innovation, branding, supply, distribution and corporate relations. In return, Diageo will become a long term equity investor in Halico and its main brand Vodka Hanoi.

In parallel and separately, Diageo will continue to develop its international premium spirits portfolio, led by Johnnie Walker, Smirnoff and Baileys, through its wholly owned subsidiary Diageo Vietnam.

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Diageo Looks to Strengthen Rum Portfolio


Diageo, the world’s largest spirits group, is holding talks with Industrias Licoreras de Guatemala with a view to acquiring a 50% stake in super premium rum brand Zacapa Centenario. Diageo has been marketing the Guatemalan rum since 2008 under a three year contract with brand owner Industrias Licoreras de Guatemala.

Sales of Zacapa, which is produced using sugar cane rather than molasses, have grown rapidly in recent years due chiefly to the growing popularity of cocktails, especially in the brand’s key markets of the US, Spain and Italy.

Diageo already owns rum brands Captain Morgan, produced in Puerto Rico, and Pampero and Cacique, both made in Venezuela.

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Diageo Strengthens Brewing Business


Diageo has strengthened its beer business in emerging markets after its East African Breweries subsidiary acquired a 51% stake in rival Tanzanian brewer Serengeti Breweries for $60.4m (£38.1m). The deal strengthens East African’s distribution in Kenya and Uganda.

Meanwhile, speculation has heightened that Diageo is considering a move to purchase the 66% of Moet Hennessy, the drinks business of French luxury goods group LVMH, that it does not already own. Incorporating the Hennessy cognac and Moet & Chandon and Don Perignon champagne brands, Moet Hennessy would cost Diageo in the region of £10.8b.

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Diageo Opens First Scotch Malt Whisky Distillery of Scale in Over 30 Years


Diageo, the world’s leading premium drinks company, has opened the doors of its new £40 million distillery in Speyside, Scotland. The Roseisle distillery is the first malt distillery of scale to be opened in Scotland in over 30 years and has been built in response to the high demand for Scotch whisky brands such as Johnnie Walker and Buchanan’s around the world.

The award-winning distillery will be formally opened by Diageo chief executive Paul Walsh on October 11th. The new distillery combines centuries of accumulated distilling knowledge and expertise with cutting-edge design and technology, to produce quality spirit for Diageo’s brands.

The £40 million investment in Roseisle is part of a capital investment programme in Scotland which has totalled £600 million over the past six fiscal years and has focused on building high quality capacity to meet growing international demand for Diageo’s iconic brands.

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Board Appointment at Diageo


Diageo has appointed Lord Mervyn Davies of Abersoch to its board effective from 1st September 2010. He becomes a non-executive director and his responsibilities will include membership of the audit, the nomination and the remuneration committees.

Lord Davies was previously Minister for Trade, Investment and Small Business for the UK Government between January 2009 and May 2010. Prior to this role, Lord Davies was chairman of Standard Chartered PLC, the financial services company with leading positions in Asia, Africa and the Middle East and for which he was also group chief executive from 2001 until 2006. He was a non-executive director at Tesco from 2003 to 2008.

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Stronger Second Half Performance Drives Growth at Diageo


A stronger second half performance has helped global alcoholic drinks giant Diageo to increase reported operating profit by 6.5% to £2.574b, aied by exchange rate movement, for the year ended June 30th 2010 as gains in developing international markets offset declines in the mature markets of North America and Europe. On a reported basis, net sales increased by 5% to £9.78b during the year. Organic growth in both operating profit and net sales for the year was 2%.

Exceptional operating costs amounted to £177m, up from £170m in 2009, and included a net charge of £142m in respect of restructuring programmes. These costs included £85 million (2009 – £166 million) for the global restructuring programme announced in February 2009, £93 million (2009 – £nil) for the restructuring of Global Supply operations announced in July 2009 principally in Scotland, £12 million for the restructuring of brewing operations in Ireland announced in 2008, and a £48 million net credit (2009 – £nil) for the restructuring of the wines business in the US.

Diageo’s profit before taxation increased by 12.5% to £2.24b in the year.

Paul Walsh, chief executive of Diageo.

“As expected this has been a year of challenges and opportunities. Our performance was much stronger in the second half than in the first – our performance in the developing markets drove overall growth while markets in North America and Europe remained weak. However, even though markets and categories have been affected in different ways and to differing degrees, we have been consistent in our focus to deliver growth and build a stronger business for the future,” says Paul Walsh, chief executive of Diageo.

“The impact of the global economic crisis varied by market and the strength of the recovery appears to be equally variable. However, as we demonstrated this year, the global diversity of our business, together with the strength and range of our brands and the agility we have demonstrated gives us confidence that in fiscal 2011 we will be able to improve on the organic operating profit growth we have delivered this year.”

Mixed Fortunes in Europe

 

Europe remained a challenging region, impacted by weak consumer confidence and economic uncertainty. Diageo’s volumes rose by 1% but net sales declined by 2% and operating profit by 1% as marketing spend was cut by 6%.

Solid results were delivered in Great Britain where volume and net sales were up 9% and 5% respectively. Diageo also achieved a strong performance in Russia with double-digit growth in both volume and net sales. This led to a significant increase in share in Scotch whisky as Diageo extended its leadership position.

However, net sales declined 8% in Ireland but Diageo gained share and the rate of decline in the beverage alcohol market slowed. Trading in southern European markets remained particularly difficult. The on trade continued to decline in Spain and increased excise taxes and reduced consumer spending led to a sharp slowdown in Greece in the fourth quarter.

The weaker trade conditions in Southern Europe and Ireland impacted overall marketing spend as campaigns were reduced in line with consumer trends. Marketing spend was allocated to proven campaigns on key brands such as Captain Morgan in Northern Europe and Smirnoff in Great Britain. A small reduction in gross margin but lower marketing spend led to the operating profit decline of 1%.

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Recession Boosts Domestic/local Spirits at Expense of International Brands


2009 was not a good year for multinational spirits companies. Euromonitor International’s ‘2010 Millionaires’ ranking saw total volumes of international brands on the list fall by 5% while domestic/local brands saw growth of 6%, selling over 400 million 9-litre cases. The Millionaires supplement is a ranking of spirits with sales of over one million 9-litre cases across all retail channels. Now in its third year, the 2010 list includes a record breaking 162 brands.

The 2010 listing continues to gain new breadth and depth with 17 new brand entries, including brands from Colombia, Turkey and most notably the soju producers of South Korea. It also shows the strength and power of spirits consumption in Asia-Pacific as domestic/local brands on the list, which are almost entirely sold in the region, accounted for over 40% of total brand volumes.

Suffering International Brands

As predicted in last year’s supplement, international brands performed poorly in 2009. Due to the effects of the recession, consumers’ trading down and the decline of on-trade consumption, total volume sales of international brands on the list has fallen. Pernod Ricard remains the company with the most brands on the Millionaires list despite losing two from the 2009 list – Presidente brandy and, more surprisingly, Luksusowa vodka.

However, two of its stand-out brands were Indian whiskies which continued to benefit from a rapidly growing category and a booming Indian economy. Second-placed United Spirits increased the number of brands on the list up two to 19 with its Bagpiper Indian whisky becoming the leading whisky brand in the world.

Diageo sits in an increasingly distant third place with 14 brands (down one) with only two of its rum brands benefiting from strong growth in its core markets (North America for Captain Morgan, Venezuela for Cacique) along with Bells in the UK. Bacardi continued to suffer from its over-reliance on a limited number of major markets, specifically in the US and Spain, with only two of its brands, Eristoff vodka and William Lawson blended scotch, recording growth.

A More Positive Future

While the picture painted in volume terms in 2009 was relatively bleak for international brands, 2010 is likely to be far more positive, due to the emerging markets of Latin America, Asia-Pacific and Eastern Europe. “Signs of economic recovery in the first half of 2010 will undoubtedly help international brands bounce back,” says Euromonitor International senior alcoholic drinks analyst, Jeremy Cunnington. “However, many core markets for these brands, especially in Western Europe, could still hold back growth as governments and consumers continue to restrict spending to reduce their high levels of debt.”

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