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Diageo full year net profit up 7 pct

Diageo full year net profit up 7 pct

Diageo PLC, the world's biggest spirits maker, posted a 7 percent rise in full-year net profit on Thursday, benefiting largely from positive exchange rate movements and cost-cutting amid weaker demand for many of its key products.
The maker of Johnnie Walker whisky, Smirnoff vodka and Guinness stout cut its profit target for the current year because of concerns about the strength of an economic recovery _ but also stressed that it believed the worst was over.
Net profit for the 12 months to June 30 was 1.62 billion pounds ($2.62 billion), up from 1.52 billion pounds a year ago.
Revenue rose 15 percent to 9.31 billion pounds, but sales were flat when the exchange rate gains were stripped out.
Diageo has been hit by destocking _ stores and distributors keeping fewer of its products _ in the United States and weak demand in Europe. Last month it announced that it was cutting 900 jobs as it shutters a 199 year-old distillery and packaging plant as part of a cost-cutting restructure of operations in Scotland.
With underlying sales flat, cost-cutting and exchange rate movements helped the company record organic operating profit growth _ the figure closely watched by analysts _ of 4 percent. That was at the lower end of the 4 to 6 percent range the company forecast in February, a prediction that was itself a lowered target from an earlier forecast of 7 to 9 percent growth.
The company dropped the target further for the current financial year, pegging "low single digit" growth.
Diageo shares opened 3.5 percent lower at 962 pence on the London Stock Exchange.
Chief Financial Officer Nick Rose said that he was confident that the company's core premium brands would not suffer long-term from the economic downturn, saying that the recent tendency of consumers to seek out value brands had been overstated.
"The question that we are often being asked is: Is the basic business model of premiumisation over? We feel very strongly that it isn't," Rose told reporters on a conference call.
"Although we are not shouting about the green shoots as aggressively as some people are, we would say that the worst is over."
The so-called premium sector includes brands that retail for around $10 a bottle in the United States, such as Diageo's Smirnoff and Ketel One vodkas and Captain Morgan rum. Super-premium brands start at $20, with the ultra-premium sector ranging from $50-100.
Rose also said that he did not expect to see further significant destocking, which had a heavy effect in the first few months of 2009.
Diageo, which also makes Baileys liqueur and Gordon's gin, said that growth in spirits offset a weakness in wine and beer sales in its key U.S. market over the year. While volumes were flat, U.S. sales rose 1 percent.
Rose said he expects North America to remain "very resilient."
The international division was a major contributor to the company's earnings report, with continued growth in Africa and increases in Latin America driving net sales growth of 7 percent, despite a 4 percent drop in volumes. Guinness stout was a star performer, with sales up 15 percent.
In Europe, volumes fell 6 percent and net sales were down 5 percent. Spain and Ireland were particularly impacted by the worsening economic environment.
The company's Asia Pacific region was the worst performer. Volumes were down 11 percent and sales down 4 percent due to trade de-stocking and a decline in sales of ready-to-drink products in Australia after an increase in alcohol tax last year.


Updated : 2020-12-01 05:16 GMT+08:00