Pressure on Diageo over sales in emerging markets

Ivan Menezes: new Diageo chief. Picture: Contributed
Ivan Menezes: new Diageo chief. Picture: Contributed
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DIAGEO, Scotland’s biggest whisky producer, will admit that pressures from some emerging markets have continued unabated during its first trading quarter when it updates the City this week.

It follows on from the partial shadow cast over the group’s full-year results reported in July, when a strong United States performance was offset by faltering growth in China due to austerity measures and political tensions in South Korea.

One drinks analyst said: “I think Ivan Menezes [Diageo’s new chief executive] will say underlying revenue and earnings targets for the full year remain unchanged, but that we may see lumpier performance from quarter to quarter.

“This economic recovery is less solid, more febrile. Diageo cannot be immune from weaker emerging market currencies as it means those consumers are paying more for premium products from the company even if they are aspirationally middle-class.”

Diageo, whose brands include Johnnie Walker whisky and Smirnoff vodka, told the market in 2011 that it expected average annual organic sales growth in the three years to 2014 of 6 per cent.

Stripping out exceptional charges and currency volatility, the group said it should grow earnings by “double digits” in the period.

“Organic sales growth is the macho metric for fast-moving consumer goods groups like Diageo and Unilever, but I expect nearer 4 per cent than 6 per cent in the latest quarter,” the analyst said.

Another broker, Numis Securities, said slowing emerging markets were pressuring Diageo’s medium-term growth forecasts and its shares, but also “creating an opportunity for investors with long-term investment horizons”.

Sales at Diageo, which employs 3,500 in Scotland, rose 6 per cent to £11.4 billion in the year to 30 June. Profits were flat at £3bn.

On Friday, the firm unveiled a £7.2 million UK marketing push for Johnnie Walker Red Label.


£7.2m marketing campaign for Johnnie Walker