Page last updated at 10:51 GMT, Thursday, 28 August 2008 11:51 UK

Diageo expects 'challenges' ahead

Johnnie Walker
The firm has seen growth of scotch in Latin America

Drinks firm Diageo, which owns brands including Guinness and Johnnie Walker, says it faces a "challenging" market after seeing little change in profits.

Profits before tax fell to 2.093bn in the 12 months to 30 June, from 2.095bn during the same period a year earlier.

Asia Pacific, which has been a source of strong sales, was hit by the loss of the firm's South Korean licence.

Other regions helped offset the loss, with strong demand for Scotch whisky in Latin America and beer in Africa.

Total net sales at the world's largest drinks manufacturer rose 7%.

'Well positioned'

"We enter the new financial year facing slowing global gross domestic product (GDP) growth and more challenging global economic trends," said Diageo's chief executive Paul Walsh.

DIAGEO BRANDS
Johnnie Walker
Guinness
Smirnoff vodka
Tanqueray
Baileys
Cuervo
Captain Morgan

While pre-tax annual profits fell, operating profits increased to 2.226bn from 2.159bn.

Mr Walsh said the firm was cutting its operating profits forecast for the year to June 2009 to between 7% and 9% from an earlier aim of 9%.

"Inevitably, the company's outlook for 2009 is rather less bullish, and the ongoing rise in commodity costs could yet erode some of its operating margins," said Richard Hunter of Hargreaves Lansdown.

But he added: "Nonetheless, the company is well positioned to withstand slowing economic growth."

Mr Walsh told the BBC that there was uncertainty in the current economic climate but that the firm's diversity - selling wine, spirits and beers - was a key asset that would help it in the downturn and give it "agility in changing markets".

The ready-to-drink segment, which denotes pre-mixed drinks such as alcopops, "continued to be challenging" said the firm after seeing net sales fall 10%.

In particular, a 70% increase in duty on the ready-to-drink sector in Australia hit sales there.

The firm recently acquired 50% of Ketel vodka as part of wider plan to target higher-margin premium brands.

While the overall outlook looked more difficult, premium brands, such as Tanqueray gin, had performed strongly said Mr Walsh.

Shares in the firm edged 0.5% lower in early trade.


SEE ALSO
Advertising gives Diageo a boost
14 Feb 08 |  Business
Diageo in $900m Dutch vodka deal
06 Feb 08 |  Business
Whisky strength boost for Diageo
28 Jun 07 |  Business
Guinness sales losing their froth
06 Mar 07 |  Northern Ireland
Diageo upbeat despite challenges
15 Feb 07 |  Business

RELATED INTERNET LINKS
The BBC is not responsible for the content of external internet sites


FEATURES, VIEWS, ANALYSIS
Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit

BBC navigation

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.

Americas Africa Europe Middle East South Asia Asia Pacific