By Andrew Starke

Global spirits giant Diageo has released its international results for the year to June 30, with the firm’s cost-cutting off-setting the impact of a weak global economy.

Overall, operating profit grew by four percent with management offering only a modest outlook for the next fiscal year after what Diageo CEO Paul Welsh called ‘a very challenging year’.

Volume was down 11 percent and sales by four percent in the Asia-Pacific region, thanks mainly to the Australian Government’s excise tax increase impacting on Diageo RTDs.

“The decline in ready to drink in Australia, following the significant excise duty increase last year, reduced the region’s volume by three percentage points and net sales by four percentage points,” said the company in a statement.

“Spirits net sales across the region declined one percent, impacted by reduced sales in the on-trade channel and trade de-stocking throughout the supply chain in particular in South East Asia and China.”

Amongst the group’s individual brands, Smirnoff vodka delivered strong net sales growth in North America, International and Australia to offset weakness in Europe.

“Smirnoff vodka grew volume one percent and net sales 13 percent in the region led by a strong performance from Australia, which grew volume 12 percent and net sales 38 percent,” said the statement.

“Strong price/mix was delivered by price increases taken in the first half combined with positive mix from the strong volume growth of the higher priced Smirnoff Black variant due to the successful ‘Bond’ activation.”

Johnnie Walker performance across the region was heavily impacted by the economic slowdown, which impacted consumer confidence and led to weakness in the on-trade and supply chain inventory reductions in key markets.

Within the variants, Johnnie Walker Red Label performed well in the standard segment with net sales down six percent and grew share in its largest markets of Thailand and Australia.

“Johnnie Walker Black Label and super deluxe were down 13 percent as they were disproportionately affected by the weakness of the traditional on-trade in key markets such as China and South East Asia,” said Diageo.

“The successful launch of Johnnie Walker Gold Label Reserve across the region provided a new premium offering for the brand and partially mitigated declines in the super deluxe segment.”

Bundaberg rum in Australia benefited from consumers trading out of the ready to drink segment but remaining loyal to the brand, and delivered 17 percent volume growth.

Price increases implemented in the first half taken together with the successful launch of the premium priced Bundaberg Red combined to deliver 12 percentage points of price/mix and share gains.

An analyst with research house Morningstar, Ann Gilpin, said her company expected Diageo to deliver a solid performance for financial year 2010 despite a weak consumer environment in Europe and North America.

“In our opinion, Diageo is the best spirits company on the planet,” she said. “With eight of the world’s top 20 brands and unrivaled global distribution scale, the firm generates robust free cash flows and has a wide economic moat, in our opinion.”

The Shout Team

The leading online news service for Australia's beer, wine, spirits and hospitality industries.

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