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Flat season for Diageo

RESULTS: China's crackdown on lavish gift-giving among government officials led to weaker top-line growth at drinks giant Diageo.
August 1, 2014

China's crackdown over lavish gift-giving among government officials might be popular with the people, but it was bad news for Diageo (DGE). The drinks giant relies on rich Chinese consumers for sales of its premium scotch Johnnie Walker, which slumped by 11 per cent in the Asia Pacific region last year.

IC TIP: Hold at 1791p

Chinese spirit Shui Jing Fang also suffered in the face of huge pricing pressure, causing revenue to plummet 80 per cent. Overall, Diageo's sales in Greater China plummeted 31 per cent, as volumes fell by one-fifth. Elsewhere in Asia growth was largely subdued, but India bucked the trend, delivering double-digit sales increases. Weaker currencies across many of Diageo's emerging market operations dealt a further blow to the group's top line.

In contrast, developed markets put in a good showing. North America delivered 3 per cent underlying sales growth and significant margin expansion, while trading stabilised in Western Europe. Finance director Deirdre Mahlan expects North America and Europe to continue to improve this financial year. She says trading in emerging markets should tick up in the second half, but won't return to the heady days of double-digit growth any time soon.

Numis Securities expects pre-tax profit of £3.22bn in the current financial year, giving EPS of 101p.

DIAGEO (DGE)
ORD PRICE:1,791pMARKET VALUE:£45bn
TOUCH:1,790-1,791p12-MONTH HIGH:2,152pLOW: 1,691p
DIVIDEND YIELD:2.9%PE RATIO:19
NET ASSET VALUE:272p*NET DEBT:117%

Year to 30 JunTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
20109.782.2466.338.1
20119.942.3676.240.4
201210.803.1278.243.5
201311.303.0698.047.4
201410.262.7193.051.7
% change-9-11-5+9

Ex-div: 13 Aug

Payment: 2 Oct

*Includes intangible assets of £7.89bn, or 314p a share