Diageo’s strong growth in emerging markets held in check by Europe

Diageo's net sales grew 5 per cent in three months to 30 September
Diageo's net sales grew 5 per cent in three months to 30 September
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DIAGEO, Scotland’s largest distiller behind brands such as Johnnie Walker and Bell’s, has seen continuing strong growth in emerging markets offset by a weaker performance in parts of Asia and western Europe.

Demand for Scotch whisky in China and for premium spirits across North America – which accounts for a third of sales – helped the spirits giant report first-quarter figures in line with expectations, despite weaker results from locations including South Korea.

In the three months to 30 September, Diageo, which also makes Gordon’s gin, Guinness stout and Smirnoff vodka, saw net sales growth of 5 per cent compared with 9 per cent the previous year.

Underlying sales in North America grew by 6 per cent, by 16 per cent in the Latin America and Caribbean region and 11 per cent in Africa, ahead of forecasts.

But European sales fell by 
1 per cent as double-digit percentage growth in sales across eastern Europe, Russia and Turkey was dragged down by weak trading in western and southern regions, with consumer demand in France hit by duty increases.

A weak South Korean market hampered trading in its Asia Pacific region, which was down 2 per cent.

The company has said it expects half its turnover to come from fast-growing Asian, African and Latin American markets by 2015, against nearly 40 per cent in its last financial year.

Chief executive Paul Walsh said it had been a “solid start to the new financial year” with net sales growth in line with expectations. “The strength of our brands and our routes to market, coupled with the investments we have made in faster-growing markets continue to drive the performance of our business.”

Walsh said that the company “continued to be aware of the uneven nature of the global economy”.

He added: “However, we remain confident that we will deliver our medium-term goals, given the strength of our brands and our routes to market.”

Richard Hunter, head of equities at Hargreaves Lansdown, said: “Diageo’s breadth of products and geographical diversification continued to save the day, with strong performances in areas such as North America, eastern Europe and South Africa.

“The pause for breath comes after a year of outperformance, during which time the shares have risen 38 per cent as compared to an 8 per cent hike for the wider FTSE 100.”

Shore Capital analyst Phil Carroll said that although Asia Pacific was disappointing, “if you are looking at the picture as a whole, we are still very happy”. He added: “Diageo remains our key pick in the sector.”

The quarterly figures also showed that net assets were 
£7.2 billion at 30 September, compared with £6.8bn three months earlier. Net borrowings stood at £8.02bn, up from £7.6bn.

Meanwhile, reports in the Indian media yesterday said Diageo was close to acquiring a 
25 per cent stake in tycoon Vijay Mallya’s United Spirits group. Mallya owns Whyte & Mackay whisky and Kingfisher Airlines.

Diageo admitted last month it was discussing “possible transactions” to acquire an interest in United. A formal announcement of the deal is likely this week.

Mallya and some of his top team are likely to remain on the board of United, with Mallya staying on as chairman.

However, the roles of chief executive and chief financial officer are expected to be taken over by executives at Diageo.