NEW Diageo boss Ivan Menezes yesterday threw his weight behind the expansion of the Scotch whisky market as demand from the United States helped Scotland’s largest distiller overcome a continued slowdown in emerging markets.
The chief executive hailed the success of the FTSE 100 firm’s marketing campaigns and “innovation”, such as the launches of Johnnie Walker Platinum Label and Johnnie Walker Gold Label Reserve, and pledged that such investment would continue.
“This has been a key driver of our performance in Scotch, our biggest and most-profitable category, especially for Johnnie Walker,” said Menezes, who took over at the start of last month from long-serving incumbent Paul Walsh, group boss for 13 years.
He added: “Johnnie Walker has been amazing. It added one million cases this year and is now a 20 million case brand. It’s grown by ten million cases and £1 billion of sales over the past ten years.
“Scotch whisky is also the engine of our business in Asia.”
His comments came as Diageo – which owns brands including Gordon’s gin, Guinness stout and Smirnoff vodka – posted a 6 per cent rise in sales for the year to 30 June to £11.4bn, although pre-tax profits were flat at £3.1bn.
The board recommended increasing the final dividend by 9 per cent to 29.3p, giving a full-year payout of 47.4p, which also represented a 9 per cent rise.
Combined whisky and whiskey sales rose by 10 per cent, accounting for two-third of group growth, with Scotch leading the way. Scotch sales rose 9 per cent, with volumes ahead 4 per cent, thanks to customers trading up to “premium and super-premium” brands.
Johnnie Walker’s sales increased by 14 per cent in the US, helping the brand to overcome problems in southern Europe, where the eurozone debt crisis has dented consumer spending.
J&B was also hit by weak demand in southern Europe and by excise duty increases in France, with sales dropping by 17 per cent. Revenues from Buchanan’s jumped 26 per cent thanks to rising demand in North America and in Latin American markets including the Caribbean, Mexico and Venezuela.
Single malts were also popular, with total sales up 17 per cent, helped by a 36 per cent jump for The Singleton and a 30 per cent increase for Talisker.
Austerity measures in China and a lack of travellers in South Korea following political tensions took some of the shine off the company’s growth, yet Shore Capital analyst Phil Carroll hailed a “strong set of results” by Diageo.
But Martin Deboo, an analyst at Investec Securities, said the group had missed consensus forecasts for organic sales and profit growth.
“It all adds up to a difficult debut for Menezes,” Deboo said. “Menezes has the misfortune to have to make his market debut on the back of a hiatus of sorts.
“We expect him to argue that this is temporary and that Diageo’s growth engines stand ready to rev. But we expect him to be under pressure to clarify exactly what ‘on track to meet medium-term guidance’ means in full-year 2014.”
Eddy Hargreaves, an analyst at Canaccord Genuity, downgraded his rating on the stock to “hold” from “buy”.
He added: “We are fundamentally more optimistic about Diageo than we are about [rival] Pernod Ricard, and these results reinforce this view. Diageo is better diversified – both geographically and category-wise – and the incoming chief executive may provide a breath of fresh air across the operations.
“However, the positives are already reflected in consensus and in the share price – therefore we lower our rating.”