Thursday 19 October 2017

Guinness and Baileys dent Diageo's results

Guinness was down 5pc in line with the rest of the market here, but its market share increased by 0.6pc to nearly 33pc while Baileys liqueur also saw it sales fall. Photo: Bloomberg News
Guinness was down 5pc in line with the rest of the market here, but its market share increased by 0.6pc to nearly 33pc while Baileys liqueur also saw it sales fall. Photo: Bloomberg News
Peter Flanagan

Peter Flanagan

THE Irish drinks market continues to contract, although there has been a slowdown in the rate of decline, according to the biggest drinks company in the world.

In its annual results, Diageo, maker of Guinness, Baileys and a host of other drinks said sales declined by 8pc in Ireland in the last year as the on-trade continued to struggle in the face of the recession.

Guinness was down 5pc in line with the rest of the market here, but its market share increased by 0.6pc to nearly 33pc while Baileys liqueur also saw it sales fall.

"It's been a difficult year for everyone and the consumer has really pulled back. However, in the last six months we have seen the rate of decline begin to slow as the cross-border trade has fallen significantly and we continue to increase our market share," said John Kennedy, managing director of Diageo Ireland.

Smirnoff, which dominates Irish vodka sales, had a strong year -- increasing market share by 5pc to reach a new high.

"During a recession, market share is key," said Mr Kennedy.

The Irish market -- still the third biggest to the group -- has declined between 10pc and 15pc in the last three years. The company said it expected the Irish market to "decline throughout the coming financial year".

Weak sales

Mr Kennedy was speaking after the drinks giant reported worse- than-expected annual results after weak sales in the US and Europe.

The company said net profit increased by 1.5pc to £1.63bn (€1.99bn) but that missed analysts' expectations of about £1.65bn. Basic earnings per share (EPS) increased 1pc to 65p while net sales were up 5pc at £9.78bn. The dividend has been increased two pence to 38.1p.

Despite the contracting Irish market, Diageo insisted that were no new plans to reduce staff numbers here. A reduction following the consolidation of its kegging operations announced last year is "ongoing".

That consolidation, combined with reductions in Scotland, has saved in the region of £65m, according to chief financial officer Nick Rose. "Guinness is performing really well outside Ireland and the UK, where markets remain challenged," said chief executive Paul Walsh.

Those markets outside Ireland and the UK drove the company's profits. Net sales grew by double digits in Latin America and Africa, as well as the Middle East. That performance offset declines of 2pc and 3pc in the US and Europe.

"Our performance was much stronger in the second half of the year than the first," said Mr Walsh.

Analysts were disappointed by the results. Brian Fagan of Davy stockbrokers pointed to a weak outlook.

"The operating profit performance is behind Pernod Ricard. Overall, this looks like a slightly underwhelming set of numbers, with little to get excited about and guidance is very vague at this point," he said.

Paul Meade of NCB said the results were more or less as expected but pointed to the lack of outlook. "Overall results are broadly in line with expectations with Diageo's commitment to maintain 6pc growth in full-year 2011 dividend reflecting its comfortable balance sheet position. No formal guidance (however) is provided reflecting the wide variability across its markets in consumer spending trends," he said.

By late afternoon the stock was off just under 1.5pc in London at £10.51.

Irish Independent

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