31st Jul 2014 13:18
LONDON (Alliance News) - Alcoholic beverage giant Diageo PLC Thursday posted a fall in both profit and sales in its last financial year, hit by a combination of weaker consumer demand, a hefty slowdown in Asia and other emerging markets, currency rate movements, and de-stocking issues in Asia.
Diageo, the world's largest spirits producer and a major producer of beer and wine, reported a pretax profit of GBP2.71 billion for the financial year ended June 30, lower than the GBP3.06 billion profit it recorded a year earlier.
Profits were hit by a GBP264 million write down of its Chinese white spirits business, Shuijingfang, after Baijiu sales in China were hit hard by the anti-extravagance campaign by the Chinese government. Diageo owns a near 40% controlling interest in Shuijingfang. The government's anti-extravagance campaign discourages lavish corporate entertainment.
Overall, in the year Diageo booked a total of GBP427 million in exceptional charges, compared with only GBP99 million last year.
Basic earnings per share fell to 89.7 pence from 98 pence the prior year.
The group declared a 9% increase in its final dividend for the year to 32.0 pence.
Net sales for the maker of Johnnie Walker whisky and Smirnoff vodka slowed to GBP10.26 billion in the year from GBP11.30 billion a year earlier, partly on the back of weaker demand in emerging markets.
"Our regional performance has been mixed. In North America we have again delivered top line growth and significant margin expansion, and our Western European business is now stable. Emerging market weakness, often currency related, but also including some specific issues, such as the anti-extravagance measures in China, has led to weaker top-line growth," said Chief Executive Officer Ivan Menezes in a statement.
Emerging markets, once the driving force behind growth in the business, have begun to slow, while developed markets like North America and Western Europe are now helping drive growth in the business as trading has picked up in the two regions.
Diageo said the strength of sterling hit sales and profits during the year. The group's stock dropped in April after it warned that current exchange rates would wipe around GBP330 million off of its operating profit for the year ending June 30.
Diageo said Thursday that currency moves actually hit its operating profit by GBP336 million, and net sales by GBP797 million.
"The exchange rate movements for the year ending 30 June 2015 are estimated to adversely impact operating profit by approximately GBP160 million and increase net finance charges by GBP10 million," Diageo said.
In North America, Diageo said it saw positive revenue growth from innovation in the first half of the year, but suffered from de-stocking issues and slower price increases in the US in the second half. Organic net sales for the year grew 3% in the region.
"North America, our biggest and most profitable region given our brand and market strength and its consistent strong performance, again delivered top line growth, driven by 5% growth in US Spirits and Wines," said Menezes.
In Western Europe, Diageo said that while some economies in the region remain weak, its seen a steady improvement in the region, as its business has stabilised year-on-year, gaining share of the spirits market. Diageo said it targeted marketing more effectively in the region, prioritising higher growth and margin brands.
"There was modest growth in Great Britain, Benelux, France and the Nordics which counter-balanced the slowing declines in Southern Europe and Ireland. Germany was weaker due to higher trade investment and an increasingly price competitive off trade," Menezes added.
The group is also facing problems in the Asia Pacific region, hit by political instability in Thailand, lower trade confidence in a number of markets, and continued weakness in its Chinese white spirits and scotch businesses. It is also facing de-stocking issues in Asia. Organic net sales in Asia-Pacfic were down 7%.
"In China the effects of the government's anti-extravagance campaign severely impacted the trade channel," Menezes said.
Revenue trends in Western Europe however, it said, are continuing to improve.
In Latin America and the Caribbean, organic net sales were up 2%, boosted by further improvements in Brazil and Colombia, but held back by a declining net sales in West LAC, its biggest market, due to destocking in border zones.
"While scotch remains the largest category in the region, growth came from the investment we made to widen participation to categories such as vodka, cachaça, liqueurs and to capture the growing affluent and emerging middle class," said Menezes.
Organic net sales were up only 1% in Africa, Eastern Europe and Turkey, owing to a slowdown in Russia, a weaker performance in South Africa and softness in Nigeria's beer market.
Diageo shares were up 0.7% at 1,801.50 pence Thursday afternoon.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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