Diageo expects challenges ahead

August 28, 2008

, SOUTH KOREA, August 28 – Drinks firm Diageo, which owns brands including Guinness and Johnnie Walker, says it faces a "challenging" market after seeing little change in profits.

Profits before tax fell to £2.093bn in the 12 months to 30 June, from £2.095bn during the same period a year earlier.

Asia Pacific, which has been a source of strong sales, was hit by the loss of the firm\’s South Korean licence.

Other regions helped offset the loss, with strong demand for Scotch whisky in Latin America and beer in Africa.

Total net sales at the world\’s largest drinks manufacturer rose 7%.

\’Well positioned\’

"We enter the new financial year facing slowing global gross domestic product (GDP) growth and more challenging global economic trends," said Diageo\’s chief executive Paul Walsh.
Johnnie Walker
Smirnoff vodka
Captain Morgan

See Diageo\’s share price

While pre-tax annual profits fell, operating profits increased to £2.226bn from £2.159bn.

Walsh said the firm was cutting its operating profits forecast for the year to June 2009 to between 7% and 9% from an earlier aim of 9%.

"Inevitably, the company\’s outlook for 2009 is rather less bullish, and the ongoing rise in commodity costs could yet erode some of its operating margins," said Richard Hunter of Hargreaves Lansdown.

But he added: "Nonetheless, the company is well positioned to withstand slowing economic growth."

Walsh said that there was uncertainty in the current economic climate but that the firm\’s diversity – selling wine, spirits and beers – was a key asset that would help it in the downturn and give it "agility in changing markets".

The ready-to-drink segment, which denotes pre-mixed drinks such as alcopops, "continued to be challenging" said the firm after seeing net sales fall 10%.

In particular, a 70% increase in duty on the ready-to-drink sector in Australia hit sales there.

The firm recently acquired 50% of Ketel vodka as part of wider plan to target higher-margin premium brands.

While the overall outlook looked more difficult, premium brands, such as Tanqueray gin, had performed strongly said Walsh.

Shares in the firm edged 0.5% lower in early trade.

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