Europe still a downer for Diageo

5th May 2011 09:26

Europe remained a drag on sales growth for spirits brands owner Diageo but that did not stop the Guinness brewer from registering 7% organic net sales growth in the first quarter of 2011."Overall trading in Europe continues to be challenging although in the quarter stronger price/mix in Great Britain and Russia offset weaker price/mix in Ireland and Greece and a deterioration of the on trade in Spain," said Paul Walsh, chief executive of Diageo.Volumes in the first three months of 2011 - the third quarter of the group's financial year - were up 2% on the corresponding period of 2010. On a reported basis net sales grew by 3% in the quarter ended 31 March 2011 and by 2% in the nine months ended 31 March 2011, against the comparable prior period in each case. In the nine months to 31 March net sales increased 5% on an organic basis against the comparable period and volume was up 3%. Organic net sales in Europe were down 3% year on year but were up by the same percentage in North America. Asia Pacific saw 9% year on year growth in the first nine months of the financial year, while the International segment's organic growth rate was 14%. 'In North America consumer trends are improving, albeit modestly, and Diageo's scotch, vodka and tequila brands performed strongly in the quarter. Better mix and lower discounts offset volume decline to drive top line growth," Walsh said. "Further improvement in price/mix in both International and Asia Pacific in the quarter were driven by the continuing strength of our scotch brands especially around Chinese new year, improving trends for our beer brands in Africa, especially in Nigeria, and stronger growth in South Africa and Australia," he added. Net borrowings were £7.06bn at 31 March 2011, little changed from the year-end figure of £7.01bn. Foreign exchange movements are currently expected to increase operating profit for the year ending 30 June 2011 by £25m against the prior year. This represents a reduction of around £30m against the guidance given at the time of the interim results and is mainly as a result of the weakness of the US dollar against sterling. ---jh