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Beverage giant Diageo holds stout despite rough market

Text by News Wires

Latest update : 2010-08-26

UK-based Diageo, the world's leading maker of spirits, has reported a 1.5% increase in net profit for the year ending in June, as strong growth in developing markets helped offset poor sales in Europe and the US.

AFP - Diageo, the world's biggest maker of alcoholic drinks, said Thursday that annual net profits rose slightly on a strong second half driven by growth in emerging markets which offset weakness in the West.

The maker of Guinness stout, Baileys liqueur and Smirnoff vodka said profits after tax increased by 1.5 percent to 1.629 billion pounds (1.994 billion euros, 2.536 billion dollars) in the 12 months to June compared with 2008/09.

Group sales rose five percent to 9.780 billion pounds.

"As expected this has been a year of challenges" said Diageo chief executive Paul Walsh amid slow economic recovery in Europe and the United States.

"Our performance was much stronger in the second half than in the first. Our performance in the developing markets drove overall growth while markets in North America and Europe remained weak," he added in the earnings statement.

Diago, which also makes Johnnie Walker whisky and Captain Morgan rum, said that operating profit grew 2.0 percent to 2.75 billion pounds -- in line with analysts' consensus forecast according to Dow Jones Newswires.

"The impact of the global economic crisis varied by market and the strength of the recovery appears to be equally variable," said Walsh.

Diageo's share price slid 1.41 percent to 1,051 pence following the earnings update, underperforming London's benchmark FTSE 100 index which was rising.

"Despite today's (share price) dip, the company is well regarded," said Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers

"The shares have outperformed the wider FTSE 100 over the last year, having risen 10 percent versus four percent, and the current market consensus that the shares are a buy is likely to remain unchallenged."

Diageo on Thursday said it was recommending a 6.0 percent increase in the group's final dividend, adding that it had considered reinstating its share buyback programme, which was put on hold during the financial crisis.

Analyst Hunter meanwhile added that a recent spike in wheat prices caused by drought in Russia would provide a headwind for Diageo going forward, whilst exchange rate fluctuations could also be a challenge.

"Nonetheless, the company's strict focus on operational efficiency, along with its product and geographical diversification, leave the company well placed for any future sustained global economic recovery," said Hunter.

Date created : 2010-08-26