Diageo eyes world amid Europe woe
Group chief executive Paul Walsh is likely to say there has been only a slight improvement in Diageo’s performance in the likes of Spain, Greece, Portugal and Ireland.
Earlier this year Walsh admitted consumer confidence in Greece and Spain was at “all time lows” as net sales in the troubled European peripheral economies slid 13 per cent.
The City is braced for details of sharp cost-cutting in those regions when the firm unveils annual results this week, with several analysts expecting job losses to be in the hundreds.
Carl Short, drinks analyst at Standard & Poor’s Equities Research, said: “It [European restructuring] will be a key area the markets will be looking at this week as Walsh has himself highlighted. You could see it mainly in terms of bringing down central costs, layers of management. Head office could be affected, with any administration that can be pushed out to the regions rather than being done centrally. It is not nice for the people concerned but it can add up to quite a significant amount of money saved.”
Sam Hart, drinks analyst at broker Charles Stanley, said the firm, which is Scotland’s biggest whisky company employing more than 3,000 people north of the Border, had a strong reputation for “running a tight ship”. But he added: “There could be potential to rationalise operations across countries rather than having individual operations in each European country.”
However, the City believes the crackdown on costs in the troubled mature markets of western Europe should not affect the whisky industry – one of Diageo’s strongest businesses. “Restructuring benefits should underpin a low-single digit [underlying earnings] growth in Europe in 2012 despite the difficult trading environment,” Citigroup said in a note ahead of Thursday’s results.
Walsh is expected to say that the company continues to make headway in reducing its exposure to Europe – which accounts for 25 per cent of group earnings – via an accelerated drive into emerging markets in the six months to June. Diageo made 32 per cent of its earnings in 2010 in regions such as Asia Pacific, eastern Europe, Latin America, the Caribbean and Africa. It plans to increase this to 50 per cent by 2015.
Diageo, whose products include Johnnie Walker and J&B whiskies as well as Smirnoff vodka, Guinness and Jose Cuervo tequila, is tipped to unveil net annual sales of £10.1 billion compared with £9.8bn in 2010. Underlying operating profits, stripping out one-off exceptionals, are expected to have climbed £200 million to £2.9bn.