30th Jan 2014 08:47
LONDON (Alliance News) - Spirits and alcoholic beverage giant Diageo PLC Thursday reported a slight drop in sales, but also a slight increase in profits for the first half of its financial year, as developed markets such as North America and an improving picture in Western Europe helped offset continued weakness in emerging markets.
The group increased its interim dividend by 9% to 19.7 pence per share, and said it does expect some top-line improvements in the second half of the year, as de-stocking in the first half of the year is now complete and ordering will improve again. Diageo said it also expects some improvements from Africa, although its performance in North America will soften slightly in the second half, due to less innovation compared to the first half.
Diageo highlighted savings of GBP200 million a year by 2017, which it said it will invest in growth and improved margin.
Diageo, the world's largest producer of spirits and a major producer of beer and wine, reported pretax profit of GBP2.13 billion for the six months ended December 31, 2013, up from GBP1.93 billion a year earlier.
It said total sales for the period were GBP8.01 billion, compared with GBP8.13 billion the prior year.
On a regional basis, while volume declined by 2% in North America during the first half, organic net sales were up 5% to GBP1.94 billion, with an 8% increase in operating profit to GBP822 million, driven by spirits and high-end and premium brands at higher prices.
Diageo said the picture in Western Europe is improving. Although overall organic net sales for the division was down 1% to GBP1.17 billion, both the Britain and France returned to growth during the period, it said, while north European markets such as Germany and the Nordics continue to perform well.
Emerging markets, which were once the driving force behind the whole business, have slowed. Diageo said that hope for improvements during the period were not met, and weakness continued to the end of the period, and will continue for the remainder of the year.
The group said it has seen a strong performance in India. Chief Executive Officer Ivan Menezes said he is "optimistic" about the spirits market in India, as well as about Diageo's ongoing issues with United Spirits Ltd, with which the company is currently in a legal battle and is appealing to the India High Court.
"We are defending the case, and we are confident in our position," said Chief Financial Officer Deirdre Mahlan said in a call with journalists Thursday.
Diageo said organic net sales fell 6%, reported net sales fell 10% to GBP835 million, and volume declined 4% in the Asia Pacific region. It said its Baijiu business was hit by government policies in China, which it expects to continue during the remainder of the year.
Diageo shares were amongst the biggest fallers on the FTSE100 Thursday morning, down 4.7% at 1,819.90 pence per share.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
Copyright © 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
Diageo