Diageo eyes upturn, despite Irish fall

Drinks giant Diageo today said it saw some signs of an upturn in worldwide trading conditions as it reported annual underlying profits had risen by 6%.

However, Ireland’s declining alcohol market continued to hurt Diageo in the year to June 30, where operating profit fell 9%.

The Smirnoff vodka-to-Guinness company said it had otherwise made substantial progress in a year of “significant challenges” including slowing consumer demand.

Diageo unveiled pre-tax profits before one-off costs of £2.16bn (€3.1bn), in line with City expectations and up from £2.03bn (€2.95bn) last year.

Other developments included the integration of drinks brands acquired from Seagram such as Captain Morgan rum and Crown Royal whiskey.

Chief executive Paul Walsh said: “Some of the pressure’s Diageo faced at the beginning of last year, including economic pressures in Latin America, had receded but the future still remains difficult to predict.”

London-based Diageo said there were some signs that trading conditions were improving in North America, the UK and Spain but further evidence of a broad-based recovery was needed before a substantial upturn could be claimed.

Global priority brands – including Baileys, Johnnie Walker Black Label and Captain Morgan – saw 4% organic volume growth in the year.

Meanwhile, ready-to-drink (RTD) brands such as Smirnoff Ice grew volumes by 5% despite the withdrawal of Captain Morgan Gold.

Operations in North America delivered operating profit growth of 11% while the UK shrugged off weakness in RTD sales to report operating profits up by 15%.

The performance in Spain improved in the second half with operating profits declining 5% in the second half compared with 15% in the first six months.

Overall, group turnover fell 16% to £9.4bn (€13.66bn) following the disposals of food producer Pillsbury in October 2001 and Burger King in December last year.

For continuing operations, which now represent the premium drinks business, turnover rose 3% to £8.9bn (€12.9bn).

Bottom line pre-tax profits slipped to £654 million from £2.34bn last year.