INTERNATIONAL. Diageo today reported a strong first half performance (to 31 December) with volumes up +4%, net sales up +7% and operating profit up +9%. Global Travel (including duty free) contributed to double-digit growth in net sales and operating profit in the International division.
Chief Executive Paul Walsh said: “Diageo’s strength is its geographic diversity with leading brands across all categories. We have again delivered broad based growth in a half when we have continued to invest behind our brands and in our routes to market.
“While performance was broadly based some individual areas of the business were key in driving these first half results. In North America our US spirits business again delivered strong top line growth. In Europe we have captured the opportunities offered by growing consumer demand for premium brands in Eastern Europe and Russia and we improved our sales execution in Great Britain in the key Christmas selling season.
“In International we have driven top line growth and margin improvement with continued strong performance across the region. Performance in Asia Pacific reflects our continued investments to build our route to market and widen our brand offerings in both India and China. In the first half overall performance in Asia Pacific has been affected by the loss of our import licence in Korea.
“Looking at our individual brand performances; Johnnie Walker has again delivered double-digit net sales growth as have Smirnoff and Captain Morgan. The performance of Guinness has also improved with net sales up +6% and share gains in Great Britain and Ireland. In addition, a new marketing campaign has reintroduced J&B to consumers in Continental Europe, Mexico and South Africa and the brand grew strongly in the first half.”
Regional summary
North America – Premium spirits drive overall growth
• Volume up 3%
• Net sales up 6%
• Marketing spend up 4%
• Operating profit up 7%
North America again delivered strong performance led by US spirits where net sales were up +8%. The priority brands Smirnoff, Captain Morgan, Johnnie Walker, Crown Royal and Sterling and Chalone wines were the primary growth drivers. These together with price increases and mix benefits across the business from innovation and premiumisation, drove top line growth and margin improvement despite increased spend behind key growth drivers such as the Reserve Brands Group.
Europe – UK, Russia and Eastern Europe continue strong performance
• Volume up 3%
• Net sales up 4%
• Marketing spend up 7%
• Operating profit up 2%
Europe’s performance overall reflected the success of the strategy to focus on premium brands and growth markets. In the UK recovery against the prior period was the result of increased marketing spend and a simplified Christmas pricing strategy on Smirnoff Red and Baileys. Guinness returned to growth in the UK and Ireland following increased marketing investment resulting in share gains in both markets.
Johnnie Walker and Baileys were the major contributors to growth in the Russian business where consumers continue to demand premium brands. Sales recovered following the disruption caused in the prior period by the introduction of strip stamps. There was strong growth throughout Eastern Europe as a result of strong performance of Johnnie Walker, J&B and Smirnoff. In Continental Europe deluxe and reserve brands were again the key drivers of growth.
International – Double-digit growth in net sales and operating profit achieved in Latin America, Africa and Global Travel and Middle East
• Volume up 7%
• Net sales up 16%
• Marketing spend up 14%
• Operating profit up 20%
In International a strong performance from Diageo’s beer brands in Africa and continued growth of Ccotch in Latin America, South Africa and Global Travel and Middle East were the main drivers of this strong performance.
The growth of Smirnoff, Baileys and J&B also made a significant contribution to the growth in the region. Price increases and mix improvements across Diageo’s scotch brands and price increases in beer in Africa drove the significant improvement in overall price/mix and delivered operating margin improvement.
Asia Pacific – Performance in the half impacted by Korea and investments in market infrastructure
• Volume up 6%
• Net sales up 1%
• Marketing spend down 12%
• Operating profit down 12%
Consumer demand in the region remained strong and Diageo continued to enhance routes to market by introducing brands into markets such as India, exploring opportunities in new markets such as Vietnam and focusing on priority brands in markets such as Australia. Diageo has continued to grow share in the key scotch markets of the region such as China. The overall performance in Asia Pacific has been affected by a number of factors including the loss of the import licence in Korea.
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