Diageo: sitting tight
Everyone and his or her dog appreciates the extent of the current global slowdown. With the exception of China, whose economy seems to have closed its eyes, stuck its fingers in its ears and 'la-la-la'd' its way up the trade rankings, the downturn has been pretty much worldwide.
Similarly, the picture of consumers cutting back on their discretionary spending is understood.
And drinks companies, like many consumer-facing businesses, have had a tough time of it, contending with this shift in spending patterns.
Around the world - but particularly in depressed economies - Diageo has seen consumers move away from premium products towards standard brands, notably in the US.
Again, China proved to be a star performer, at least in relative terms, hoovering up as many bottles of Diageo's ultra-premium blended whisky the John Walker - priced at $3,000 (£1,250) a pop - as it could get its hands on. It was more than 50, at the last count, in a country that is currently taking to scotch like a babe to its mother's milk.
Looking for value
Meanwhile, the Old World was feeling the pinch, Diageo's chief executive Paul Walsh suggested: "People are looking for value in established markets, although our brands continued to command a price premium where markets were buoyant."
Developing and emerging markets were starting to come out of the recent gloom, Walsh believed, but there appeared to be a polarisation. The world's drinks market appear to be polarised between Latin American and Asian markets on one side, and European and the US trading areas on the other.
Reporting organic operating profits down three per cent in the six months to December 31, 2009, Walsh said Europe and the US were currently "a share game". The outlook for the group's developed markets was "pretty flat", although he stressed that in the current climate "'flat' wasn't that bad".
Marketing spending was down five per cent in the first six months and likely to stay that way for a while as Europe - and countries such as Spain and Ireland in particular - continued to feel the effects of the economic downturn. Meanwhile, the group's free cashflow increased a whopping £517m to £904m, helped by "tight management", such as reducing working capital.
In the UK, Diageo saw its highest recorded share of the domestic on-trade beer market in the first half, thanks largely to the success of its 'Arthur's Day' campaign for Guinness, commemorating the 250th anniversary of the opening of the St James' Gate brewery in Dublin last September. In fact, such was the success of the campaign that the group is considering making it an annual event.
Overall Walsh said he did not believe there would be a significant uplift in trading performance during the second half, but that while gross margins had deteriorated he expected these to pick up by the end of the current financial year.
The group's cost-cutting programme, which had delivered £120m so far, would be completed by the end of the first quarter of the next financial year, Walsh said.
It will eventually deliver savings of around £185m a year, he said, "and more efficient ways of working".
W-shaped recession?
While Walsh said there were no more plans on the table to close any facilities than had already been publicised - referring in part to next year's plant closures in Scotland - he refused to rule out further cutbacks.
"We would have to revisit the subject if we were to have a W-shaped recession," he said.
The chief executive also declined to elaborate on earlier comments he'd made to the media regarding Diageo's status as a UK-headquartered company. "We like operating out of the UK, but if taxes, both corporate and personal, rise then we will look at our options," he added.
Walsh also poured scorn on proposals for a minimum price for alcohol.
"The government's own figures show that average consumption is down by 11 per cent, which would be at odds with the introduction of minimum pricing. It's just clumsy," he said.
The government had enough to focus on "without tinkering about with this", he added.
