17th Apr 2014 09:23
LONDON (Alliance News) - Spirits and alcoholic beverage giant Diageo PLC Thursday reported another dip in sales in the third quarter, hit by weaker demand for its beverages and a hefty slowdown in Asia and other emerging markets.
Diageo, the world's largest spirits producer, and a major producer of beer and wine, said that organic net sales were down 1.3% in the third quarter ended March 31, while volume fell by 1% overall, as volumes continued to decline in emerging markets.
"The third quarter saw currency and economic weakness impact consumer confidence across many emerging markets while consumer trends in the developed markets were in line with those in the first half," the company said in a statement.
Diageo said that the business has also been hit by currency movements, warning that current exchange rates would wipe around GBP330 million off of its operating profit for the year ending June 30.
"Current trends will impact top line growth this financial year, but strong management of our cost base means that we remain committed to the delivery of our margin expansion goals," said Chief Executive Ivan Menezes in a statement.
Over the nine months to March 31, the Smirnoff and Johnnie Walker brands owner, said that organic net sales were up marginally at 0.3%, although reported net sales dropped 7.4%, which it said was due to currency movements and the termination of its distribution agreement with tequila brand Jose Cuervo. Volume over the nine months period declined 2%.
During the third quarter, organic net sales dropped 19% in Asia Pacific, hit by political instability in Thailand, and lower trade confidence in a number of markets, and continued weakness in its Chinese white spirits business.
Organic net sales were down 5.2% in Africa, Eastern Europe and Turkey, despite growth in Turkey and improving trends in Nigeria, due to a slowdown in South Africa and a further decline in Senator Keg sales in Kenya. India and the Middle East both delivered double digit growth, it said.
In Latin America and the Caribbean, organic net sales were up 27.7%, due to further improvements in Brazil, and a stronger performance in the western part of the region, which benefited from a weaker comparative quarter.
"This stronger performance was partially offset by weakness in Mexico, while the use of a new exchange rate to translate Diageo's business in Venezuela reduced the market's overall contribution to regional growth," the company said.
Diageo said that developed markets like North America and Western Europe are helping drive growth in the business now, with trading having picked up in the regions, while emerging markets, once the driving force behind growth in the business, have begun to slow.
"Our performance reflects the challenging environment we are operating in. Consumers in North America are most resilient, as are consumers of our reserve brands in most markets," said Menezes.
Earlier this week, Diageo launched an offer to buy up to 26% more of India's United Spirits Ltd in a deal estimated to be valued at about USD1.9 billion. The offer is a second attempt by the spirits giant to grab a bigger stake in United Spirits, having lost out the first time after offering a price smaller than the company's share price. Diageo currently holds a 28.78% stake in United Spirits. If the current offer is successful, its holding will increase to 54.78%.
Last year, Diageo said that it would sell most of its Whyte & Mackay business in response to competition and pricing concerns from the UK competition regulator the Office of Fair Trading, for bottled blended Scotch whiskey.
Diageo shares were down 3.4% at 1,826.50 pence per share Wednesday morning.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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