INTERNATIONAL. Diageo today reported organic net sales growth of +7% (to £5.32 billion) for the half-year ended 31 December 2011, with volumes rising by +3% and operating organic profit up by +9% (to £1.72 billion).
Global Travel Asia & Middle East (which reports into the Asia regional division) posted a -1% dip in volume, but a surge in organic and reported net sales. The travel retail business now reports into each region, with Global Travel Asia & Middle East the only one where results are broken out. [See below for reaction].
Diageo said: “In the Global Travel Asia and Middle East business volume declined -1%, driven by Johnnie Walker Red Label and Smirnoff in the Middle East, following price increases. However, strong double digit net sales growth in premium and super-premium brands included the launch of Johnnie Walker XR 21 and Johnnie Walker Platinum 18 year old. This combined with increased prices, drove price/mix and net sales increased +15%.”
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Global Travel Asia & Middle East posted a robust +15% net sales growth (left column) |
By region, organic net sales grew by +5% in North America, +12% in Africa, +23% in Latin America, +10% in Asia Pacific and were flat in Europe.
Diageo Chief Executive Paul Walsh said: “Diageo has delivered a solid and well balanced first half performance with +9% operating profit growth and 60 basis points of operating margin expansion. 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.
“Our emerging market business grew net sales +18% and operating profit +23% and now accounts for almost 40% of our business. Our performance improved in our developed markets business and we delivered top line growth and operating margin expansion while marketing as a percentage of net sales increased.
“Globally Johnnie Walker grew +15%, Smirnoff returned to growth, Guinness grew +5% and our reserve brand portfolio grew +25%. Our strategic brands grew +8% and the strongest performing categories were Scotch, up +14% and vodka, up 13% while our beer brands delivered +7% organic net sales growth.
“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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“We’re very excited about 2012. Despite the economic problems we’ve seen in some places there are still phenomenal opportunities.“ |
Jane Ewing Managing Director Diageo GTME |
UPDATE
Speaking to The Moodie Report this afternoon, Diageo Global Travel & Middle East Managing Director Jane Ewing said that travel retail overall had delivered “a very strong performance”.
She noted: “Asia as you would expect performed very well, with the Walker brands leading growth, but also very exciting was the performance of our Chinese white spirit, Shui Jing Fang (its second biggest-selling brand in Asia behind Johnnie Walker Scotch whisky). That has really started to accelerate not only in Asia Pacific but also at other airports where we’ve launched it. So that is a big opportunity. It includes a number of variants such as limited edition exclusives that grab the attention of Chinese passengers looking for a gift to take home.
“Also in Asia the launches of Johnnie Walker Platinum and XR 21 have started well and we’re confident they will be big successes.”
Of the other key regions, Ewing noted: “European travel retail has performed solidly and we’re happy with some of the big activations we’ve carried out. These includes the Smirnoff store transformation we carried out in Tenerife, which has delivered outstanding results and the luxury drinks boutique at Frankfurt Airport, which has made a big impact.”
In the Middle East, a number of major activations around Johnnie Walker drove that business, with the Abu Dhabi Airport Formula 1 programme with DFS a highlight. Ewing said: “That was a real example of the Trinity at work where airport, retailer and brand played their part.”
In the Americas, the business is being aided by strong passenger growth, and also by the strength of the cruiseline business. “In the Americas we are seeing more and more Brazilian passengers and we see this as a big opportunity for the region,” said Ewing.
In terms of leading brands, Johnnie Walker and its Double Black line extension have proved strong, with the latter “now a powerhouse in its own right,” Ewing noted.
“There is a lot happening beyond Walker, which of course is our biggest brand,” she added. “The launch of Smirnoff Gold exclusively at Dubai Duty Free is a big story for us; it’s a brand we’ll roll out early this calendar year. The new Baileys Biscotti flavour is doing well, plus some of our reserve brands such as Ciroc vodka and Zacapa rum are performing extremely well.”
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Shui Jing Fang has proved a strong performer in travel retail |
On taking the company’s strong programme of activations forward in the year ahead, Ewing noted: “We have taken a lot of learnings from past activations. And in some cases a project that might look fantastic does not always deliver the returns we need. We have done a lot of work in evaluating these activations and asking what works for the consumers but also what works commercially for us and for our partners.
“We will use this knowledge to continue innovating around new brands and around improving how we activate at the point of purchase.
“We will invest across the world, but obviously there are partners who are willing to work with us and to try new things, and that is where the investment goes. There are some companies that only want to have one-dimensional conversations and it can be difficult to push the boundaries with some companies. But there are partners who want to do new things and that’s where we’ll focus our efforts.”
On the year ahead, Ewing noted: “We’re very excited about 2012. Despite the economic problems we’ve seen in some places there are still some phenomenal opportunities, still good passenger growth, and there are areas that have been under-exploited by the industry.
“We plan to close in on some of those opportunities by being innovative and appealing to our shoppers.”
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