By Simon Zekaria
LONDON--Diageo PLC (DGE.LN), the world's largest liquor company
by revenue, Thursday said it is on track to meet its goals as it
recorded a rise in profit, driven by purchases in emerging markets
and a continuing robust recovery of the U.S. spirits market.
"Diageo is a strong business, getting stronger and the results
we released this morning show that very clearly," said Chief
Executive Paul Walsh.
The U.K.-based company, maker of Johnnie Walker Scotch whisky
and Guinness stout, said net profit in the year ended June 30
increased to 1.94 billion pounds ($3.08 billion) from GBP1.9
billion the previous year.
Operating profit before exceptional items--a closely watched
metric--grew 11% to GBP3.20 billion, ahead of market expectations
of GBP3.18 billion.
Sales rose 8.3% to GBP10.76 billion, just ahead of market
expectations of GBP10.75 billion, and up 6% excluding acquisitions,
disposals and currency effects. Full-year volumes on the same basis
rose 2%.
The numbers fit Diageo's medium-term outlook for average
top-line growth of 6% excluding acquisitions, disposals and
currency effects. The targets also call for operating-margin
improvement on the same basis and double-digit earnings-per-share
growth.
Demand for premium spirits like whisky, vodka and rum in
Asia-Pacific and Latin America particularly, where rising incomes
and adult populations are supporting high-end alcohol consumption,
is driving Diageo's earnings growth, like its French rival Pernod
Ricard SA (RI.FR). Diageo expects developing economies to
contribute half of its global revenue by 2015, up from almost 40%
currently.
Emerging-markets growth is key to maintaining Diageo's
performance amid sluggish trading in debt-laden Western Europe,
where below-inflation pay rises and unemployment are squeezing
spending.
While Pernod prioritizes debt reduction, Diageo has been on a
more active acquisition trail in recent years across developing
economies, having snapped up Turkish raki maker Mey Icki, Chinese
baijiu producer Shui Jing Fang and, most recently, leading
Brazilian cachaca brand Ypioca.
The company has also been buoyed by a rebound in the U.S.
spirits market, as consumers shift away from beer, even as economic
conditions remain largely fragile. Solid recent trading of peers
Beam Inc. (BEAM), Brown-Forman Corp. and Davide Campari-Milano SpA
(CPR.MI) in North America raised expectations that the world's
biggest consumer market is showing momentum.
Consumers opting for higher-priced products, moves away from
discounting and price increases across various markets have also
boosted Diageo's top line, while cost savings from back-office
functions, plant and distribution operations and procurement have
fed margin growth.
Diageo recommended a full-year dividend of 43.5 pence, up 8%
from 40.4 pence last year. Its shares closed Wednesday at 1681
pence, valuing the company at GBP42.1 billion.
Write to Simon Zekaria at simon.zekaria@dowjones.com
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