Diageo in line as China weakness offsets buoyant US spirits

31st Jul 2014 07:51

- Net sales up 0.8% in Q4, up 0.4% for FY - EPS down 7.4% with large FX hit- China and emerging markets remain weakAn improvement in net sales in the fourth quarter helped drinks giant Diageo to limit the bottom-line decline for the full year, as weakness in China and foreign exchange rates undermined strong growth in North America.Organic operating profit before exceptionals rose 3% to £3.1m as operating margin improved 80 basis points, but earnings per share before exceptionals dripped 7.4% lower to 95.5p due to a 10p effect from adverse currency movements. Fourth quarter net sales growth of 0.8%, improving from 0.3% in the third but down on the 1.8% growth in the first half, helped total net sales rise 0.4%. "Our regional performance has been mixed," said chief executive Ivan Menezes. "In North America we have again delivered top line growth and significant margin expansion and our Western European business is now stable. Emerging market weakness, often currency related, but also including some specific issues, such as the anti extravagance measures in China, has led to weaker top line growth."A weaker trading environment in China and South-East Asia dragged operating margin down 136 basis points. A downturn in the popular baijiu spirit category in China, driven by the anti extravagance measures by the Chinese government, led to a £264m writedown on the value of its majority stake in the premium Shui Jing Fang brand. North America is flourishing with 3% net sales growth and 8% operating profit was driven by 5% growth in spirits and wines, and margin expansion of 183 basis points as a result of gross margin expansion and cost reduction.Europe's return to stability saw flat net sales and operating profit, as growth in UK, Benelux, France and the Nordics was offset by weakness in southern Europe and Ireland.Menezes distilled the overall performance thus: "But we have gained share and expanded margin while continuing to invest in our brands, our markets and our people to create a stronger business that will deliver on the long term growth opportunities of this attractive industry."Looking forward, he said the catalysts for a near-term recovery of consumer spending in emerging markets were "still weak" but felt more optimistic about the "undiminished" future growth drivers for the industry. The full year dividend was slightly ahead of expectations at 51.7p (SC:51.0) with an increase of 9%.Shares in the company were up 0.67% to 1,801p at 08:17 on Thursday. OH