Diageo counters Euro woe

Diageo is expected to announce rising profits this week as increasing sales in emerging markets offset declines in Europe.

The world’s biggest drinks company is set to reveal that underlying profits rose 5% to £2.9 billion in the year to 30 June, while sales should be up 5% to £10.1bn.

Chief executive Paul Walsh is expected to confirm that the company is continuing to reduce its exposure to Europe – which currently accounts for 25% of the group’s earnings – by accelerating its drive into emerging markets.

Diageo saw 32% of its earnings in 2010 come from regions such as Asia Pacific, eastern Europe, Latin America, Africa and the Caribbean. It hopes to raise this to 50% by 2015.

The company has shed several hundred jobs in the Eurozone as it struggles to fight against falling sales in the region, with an announcement on the full extent of the cost-cutting programme set to be made alongside the company’s annual results on Thursday, 25 August.

The city is braced for dramatic news on the job-cutting front. Carl Short, drinks analyst at Standard & Poor’s Equities Research, said: “The European restructuring will be a key area the markets will be looking at this week as Walsh himself has 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.”