China, emerging markets push Diageo profits down

Guinness saw a 1% fall in global sales due to "challenging" conditions in Nigeria and a growth in craft beers in North America
Guinness saw a 1% fall in global sales due to “challenging” conditions in Nigeria and a growth in craft beers in North America

Diageo, the world’s largest distilled drinks maker by sales, has posted weaker-than-expected earnings, hurt by a slowdown in China and volatility in other emerging markets, including Nigeria.

Over the last year, the maker of Guinness, Johnnie Walker whisky and Smirnoff vodka has grappled with a host of issues in emerging markets.

These include currency devaluations, a tax increase on one of its beers in Kenya and a steep decline in sales of Chinese baiju spirit, due to government-enforced austerity measures.

That decline led the company to take a write-down on the value of its business, worth about £79m on a net basis.

Diageo reported earnings of 95.5 pence per share before exceptional items for the full year ended 30 June, down from 103.1p a year before and below analysts’ forecasts around 97.7p.

Net sales fell 9% to £10.3bn, while the average forecast was £10.5bn, according to Thomson Reuters data.

There was a 4% fall in net sales in Ireland during the year, with the company saying a rise in excise duties contributed to that.

Of its Irish brands, Guinness saw a 1% fall in global sales due to “challenging” conditions in Nigeria and a growth in craft beers in North America.

Diageo said Guinness sales in East Africa rose by 19%, however, thanks to an increase in marketing spend.

Sales of Baileys were broadly flat, with a decline in Western Europe counter-balanced by an increase in British sales following the launch of a new product line.

Meanwhile its Bushmills whiskey brand saw global sales increase by 7% during the year, spurred on by the launch of a new product line as well as its Bushmills Live promotional event.

Diageo did not provide a forecast for the current year, but chief financial officer Dierdre Mahlan told reporters trading in North America and western Europe should continue in a similar trend as recently, though emerging markets should improve, probably in the back-half of the year.

“While we expect those to improve, the top line performance will be dependent, to some degree, on how quickly those economies come back,” Ms Mahlan said.

Sales volume, which measures the amount of drinks sold, fell 5% in Diageo’s Asia Pacific and Africa, eastern Europe and Turkey divisions and 1% in North America and Latin America. Western Europe was flat.

Weak spots include China and southeast Asia, where volume fell 20% and 25% respectively, and Venezuela, where a currency devaluation and inflation cut Scotch sales 47%.

You might also like