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Diageo: Great Britain volumes flat

Start a new threadBy Ewan Turney , 25-Aug-2011

Related topics: General News

Drinks giant Diageo has reported a small market share loss in beer and wine in Great Britain but was flat overall.

Guinness: best selling beer in Ireland

Guinness: best selling beer in Ireland

Drinks giant Diageo has reported a small market share loss in beer and wine in Great Britain due to price increases fuelled by VAT and duty hikes and the continued shift from on to off-trade for the year to 30 June.

 

Volumes were flat in GB with organic net sales growth of 2% and reported net sales up 2%.

 

Net sales of wine grew 14%, which impacted on margin while its marketing spend for the year increased with a focus on its super premium brands, such as Ciroc Vodka, and innovation.

 

Net sales of its reserve brands, such as Tanqueray London Dry gin and Johnnie Walker Black Label, grew 30% driven by super deluxe scotch while three new product launches and a media campaign led to share gains in the premix segment and Diageo finished the year with over 50% of the segment.

 

Ireland

 

In Ireland, high levels of unemployment and personal tax increases continued to restrict consumer spending, particularly in the on-trade. Guinness remained the best selling beer in Ireland but net sales declined due to the on-trade dip but there was growth in the off-trade. Marketing spend on the brand increased with the "Arthur Day" celebrations and a deal with the Irish rugby team. Net sales of spirits grew 2%.

 

Europe

 

Overall in Europe, volumes declined 2% with Diageo reporting a "challenging pricing environment and on-trade weakness", particularly in Spain and Greece. On an organic basis, net sales declined 3% with marketing spend down 4% and operating profit down 7%.

 

Beer volumes in Europe dipped 5%, wine 1%, spirits 1% and ready to drink 4%. Captain Morgan rum was its top performing brand in the region with a 40% volume growth. Smirnoff volumes were down 4%, Johnny Walker 3% while J&B and Guinness suffered dips of 5%.

 

Stronger second half

 

Internationally, the group as a whole reported a stronger second half performance with a 5% organic growth in net sales (£9,936m) and operating profit (£2,595m) for the full year.

 

Volume growth was up 3% for the year driven by a 16% growth in scotch in the emerging markets and 24% growth in its reserve brands in developed markets.

 

Across the group as a whole, spirits volumes were up 3%, beer up 1%, wine down 2% and ready to drink down 3%. Its top performing brands in terms of volume increase were Ciroc Vodka (123%) and Johnnie Walker (11%).

 

Organic marketing spend was up 8% to 15.5% of net sales, with the focus on emerging markets and key spirits brands in the United States. The final dividend is set to increase 6%.

 

In May, Diageo announced an operating review which is expected to reduce costs by approximately £80m a year by the end of the 2013 financial year. The cost of the changes is expected to be £160m — of which £77m was listed as an exceptional charge this year.

 

The group has also expanded its reach by taking a controlling stake in Serengeti Breweries in Tanzania, an equity stake in Halico in Vietnam, the acquisition of Mey Icki in Turkey, an additional investment in ShuiJingFang in China and a controlling stake in Zacapa super premium rum, totalling £1.6bn.

 

Operational efficiencies

 

"Diageo is a strong business as these results show," said chief executive Paul Walsh. "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. 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 earnings per share growth.

 

"Achievement of these aims would underpin even stronger dividend growth."

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