Diageo boosted by ‘faster growing markets’

Diageo, the world’s biggest drinks company, has reported steady growth for the first six months of its financial year, to 31 December 2012.

The company’s growth has been driven by its strong presence in the US and “faster growing markets”. Diageo reported that the faster growing markets accounted for 42% of its net sales in the six months. These markets also delivered organic net sales growth of 14% and an operating profit growth of 21%.

Diageo added that “emerging middle class customers” were a key driver in its growth.

Paul Walsh, Diageo’s chief executive, said: “These results reflect the global strength of our strategic brands, our leadership in the US spirits market and our increasing presence in the fastest growing markets of the world.

“Our expanding reach to emerging middle class consumers in faster growing markets was the key driver of our volume growth, while net sales growth was driven by our pricing strategy and premiumisation, especially in the US. This drove gross margin expansion, which together with our continued focus on operating efficiencies, delivered operating margin improvement.”

Diageo’s growth over the first six months of the financial year were also driven by Latin America and the Caribbean, with 18% growth and Africa (10%). In Asia Pacific and North America Diageo’s growth was 6% and 5% respectively.

The company reported that in Europe it struggled with the “challenging economic environment”, particularly in Southern Europe.

Andrew Morgan, president of Diageo Europe said: “In Western Europe our performance continued to be impacted by the very challenging economic environment. In Southern Europe consumer weakness and reductions in customer inventories, led to a net sales decline of 19%.

“In a tough competitive environment, net sales in Great Britain were essentially unchanged. In contrast, Germany and Benelux performed well delivering double-digit growth and the malt whisky brands and Johnnie Walker’s ultra premium brands drove a good performance in our reserve business.”

Despite the problems in Europe, Walsh was happy with the results, he added: “This is a strong set of results, confirming our medium term guidance and supporting our decision to increase the interim dividend by 9%.”