Top-End Spirits Spur Diageo Sales to Pounds 4bn

By SIMON ENGLISH

DIAGEO, the world’s biggest maker of alcoholic drinks, recorded strong sales of more than Pounds 4 billion for the last six months as affluent consumers around the globe developed a taste for high- end spirits.

Although performance in the UK remains sluggish, the drinks group was able to increase profit forecasts for the year thanks to the success of the Johnnie Walker brand in Asia and elsewhere.

In particular, premium Scotch Johnnie Walker Blue Label King George V – which retails at about Pounds 400 a bottle – helped Diageo report operating profits of Pounds 1.3 billion for the first half of its fiscal year, slightly ahead of the same period a year earlier.

Chief executive Paul Walsh said: “All of our brands are healthy, but the star of the show is definitely Johnnie Walker.” He attributed the results to strong marketing campaigns and booming economies in the developing world.

“Consumers are becoming more aff luent and aspirational. They want stylish spirits brands,” he added.

A recent decision to reposition Baileys Irish Cream at a higher price and introduce new flavours is also bearing fruit.

Overall international profits were up 17%. Diageo now predicts profit growth of 8% for the year, an upgrade that led to a rise in the shares from 42p to 1036p.

The company has sold its stake in US food giant General Mills and offloaded the Burger King chain in order to focus on promoting its drinks, which include also Smirnoff vodka, Gordon’s gin and Guinness.

Investors have wanted to know for some time what Diageo intends to do to boost its UK performance, but Walsh was sanguine today, pointing out that Britain now accounts for less than 10% of profits.

The company has cut back its promotion of “ready to drink” goods such as alcopops, and is pushing premium spirits instead. Sales fell 2% across Europe, partly because of smoking bans that are leading to less drinking in bars.

The Irish are also drinking fewer pints of Guinness, according to Walsh, a 25-year veteran of the company who has been chief executive for seven years.

Arguably, the hole in Diageo’s portfolio is a strong tequila brand.

The business is certainly producing enough cash to make a purchase possible should an opportunity arise.

Diageo expects to return Pounds 1.4 billion to shareholders this year through share buybacks. A further Pounds 1 billion is to be spent on buying its own shares in 2008.

An interim dividend of 12.55p, up 5%, will be paid.

Exchange rate fluctuations – largely the weakness of the dollar – are likely to knock profits for the year by about Pounds 90 million.

In America, where the company promotes itself as a supporter of “responsible drinking”, Diageo has come out in support of legislation in some states that proposes a ban on so-called AWOL machines (Alcohol Without Liquid) that enable consumers to inhale alcohol vapours.

Whisky galore

DIAGEO is to spend Pounds 100 million in the next two years expanding its whisky operations to meet growing demand from Brazil, Russia, India, China and Mexico. The investment – one of the biggest ever in the industry – will allow the company to build a new malt distillery in north Scotland and expand its production, bottling and warehousing capacity. Diageo chief executive Paul Walsh, pictured, said up to 200 jobs will be created by the move.

(c) 2007 Evening Standard; London (UK). Provided by ProQuest Information and Learning. All rights Reserved.