Diageo reports encouraging signs of growth

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Diageo's Global Travel and Middle East division achieved an impressive volume increase of 8% and net sales up 4% in the first half of its financial year, ending December 2009 and it noted that passenger

numbers began to improve in the last calendar quarter of 2009, although the travel retail environment 'remained fiercely competitive'.

Diageo said today that Johnnie Walker delivered the strongest performance in the division with 10% net sales growth after strong centenary promotional activity for Johnnie Walker Black Label. The company added that this offset declines in Smirnoff and Baileys. Zacapa rum was also a very strong performer within travel retail, following increased listings, improved visibility and consumer sampling.

Meanwhile, as a group, Diageo reported pre-tax profits for the first half of its financial year ending December 2009 of ?1.39bn from ?1.41bn ($2.17bn to $2.20bn) a year ago, with sales down 6% in the first quarter, but up 2% in the second.

Commenting on the results in a statement today, Ceo Paul Walsh said: ‘As we had anticipated, this was a challenging six months. The economic and consumer environment remained weak in many markets and we faced a difficult comparison against Q1 last year, yet the second quarter did show a return to growth.

‘In addition we reduced stock levels in all regions. While this had a negative impact on volume growth in the half, it positions us appropriately for the future. While pricing opportunities have been limited and the performance of our standard-priced brands has been stronger than that of our premium-priced brands, our diversity, through category and brand range and our wide geographic reach, means that overall price/mix has been maintained.

‘Our category leading brands, the consistency and scale of our marketing investment, successful innovation and our industry leading sales capabilities have led to share gains for Diageo?s priority brands in key markets.

‘We are in the early stages of recovery with more encouraging signs in the emerging and developing markets. However, in a difficult environment this half we have continued to improve the efficiency of our functions, reduced our cost base, strengthened our relationships with our customers and generated significant free cash flow which has again enhanced our financial strength.

?Focused marketing spend by category and geography continues to build our brand equities. We are maintaining our guidance for low single digit organic operating profit growth for the full year. At a time when future economic and consumer trends continue to be difficult to forecast, the steps we have taken have created a stronger business which will position the company well.’

Meanwhile, Ceo Paul Walsh also told the BBC World Service this morning that draconian taxation levels in the UK might ultimately leave Diageo with ?no option? but to look at establishing its operations outside the UK.


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