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Europe ‘challenging’ for Diageo
Diageo reported steady growth today, assisted primarily by growth in the spirits category, as well as by efficiency-based savings.
Diageo reported steady growth today, assisted primarily by growth in the spirits category, as well as by efficiency-based savings.
Financial results for the six months ending 31 December 2005 showed 4% growth in Diageo’s volume sales in North America, with growth in almost every category. In Europe, a "more challenging trading environment" according to Paul Walsh, chief executive of Diageo, volume remained the same, with net sales slightly decreasing. Despite this, the region showed a 7% increase in operating profit, owing to increased efficiency in organisation.
Europe is seen as a difficult environment because of a rise in both duties and regulations. A European shift from on- to off-trade, particularly in Ireland, also affected Diageo adversely, with a majority of the company’s focus directed at the on-trade.
Smirnoff showed growth in almost every international market, outperforming in a generally growing market. This was despite a significant decrease in the ready-to-drink market, with Smirnoff’s offering in this category down 15% in volume in Great Britain, for example. Johnnie Walker also contributed to growth in this category.
In the beer market, sales increased in North America with net sales of Guinness, one of Diageo’s primary beer brands, up by 15%. Beer was less successful in Great Britain and Ireland, partly a result of a particularly hot summer.
Diageo’s wine sales continued to increase in most markets. In Great Britain a shift from French to New World wines increased sales of Diageo wine brand Blossom Hill, but negatively affected Piat d’Or. In North America, wine sales increased, but a warehouse fire that destroyed much of Sterling Vineyard’s 2003 vintage is likely to affect performance in the near future.
"This is a strong first half performance," Walsh said. "We have invested in our brands and built our market positions. We have again achieved our financial objectives."
db 16th February 2006