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Europe Remains Weak Spot For Diageo

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Europe Remains Weak Spot For Diageo

Europe Remains Weak Spot For Diageo
February 14
14:45 2011

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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