Like many multi-national companies heavily exposed to emerging markets, Diageo (DGE) is feeling the pain. In a stark reminder that growth in the developing world is not guaranteed, these regions have seen their economies slow and currencies weaken.
In Asia, where the drinks giant once boasted insatiable demand for its whiskies, underlying net sales fell 6 per cent and volumes were 4 per cent lower. Regional revenue from Johnnie Walker tumbled 10 per cent. In China, a key market, sales slumped 23 per cent as the government’s austerity crackdown on gift-giving prompted the mass discounting of baijiu, a local spirit. In Africa, Nigerian consumers traded down to value beers, diluting Diageo's sales growth in the region. Underscoring the reversal in the global economy, North America was the surprise star performer, reporting 5 per cent sales growth.
With volume declines across the board and serious currency headwinds - exchange rates sliced £86m off group sales - Diageo cut costs, raised prices and improved the product mix. This boosted the operating margin by 40 basis points and helped underlying operating profit rise 3 per cent to £2.1bn. There are plans afoot to restructure the business, which would save £200m a year by 2017.
Canaccord Genuity expects pre-tax profit of £3.5bn for the full year, giving EPS of 111p, up from £3.1bn and 104p in 2013.
| DIAGEO (DGE) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,803p | MARKET VALUE: | £ 45bn | |
| TOUCH: | 1,802-1,804p | 12-MONTH HIGH: | 2,152p | LOW: 1,691p |
| DIVIDEND YIELD: | 2.7% | PE RATIO: | 17 | |
| NET ASSET VALUE: | 282p* | NET DEBT: | 110% | |
| Half-year to 31 Dec | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 8.1 | 1.9 | 60.8 | 18.1 |
| 2013 | 8.0 | 2.1 | 67.5 | 19.7 |
| % change | -1 | +10 | +11 | +9 |
Ex-div: 26 Feb Payment: 07 Apr *Includes intangible assets of £8.3bn or 331p a share | ||||
