Business Irish

Sunday 21 January 2018

Annual profits at Diageo soar to £2.5bn despite Irish market woes

Peter Flanagan

Peter Flanagan

ANOTHER poor year in Ireland couldn't hold back Diageo, as the biggest drinks company in the world posted strong annual profits.

Despite good numbers overall -- operating profit was up 5pc to £2.5bn (€2.9bn) for the year ended June 30 -- the Irish market showed no sign of turning around, with Guinness sales and volume both falling again.

"High unemployment levels and personal tax increases in Ireland continued to restrict consumer sentiment, particularly in the 'on' trade," the company said.

Guinness retained its market share here, accounting for one-third of all pints pulled in the Republic. That market is shrinking, however, as consumers spend less in pubs and prefer to drink at home.

Sales of the pint of plain fell 5pc, while volume was down 1pc.


In Ireland, the long alcoholic drinks sector contracted by 5.4pc during the first six months of the year, while it is down around 15pc since 2007. Globally Guinness volumes grew by 2pc.

Numbers like those are believed to be behind the move to cut jobs at Diageo's Irish operation last May, with some 80 positions likely to go before the end of this year.

In contrast to Guinness, Baileys recovered somewhat from a tough 2009 on the back of sales growth in the US and emerging markets of some 21pc. Worldwide, the volume of Baileys grew by 3pc.

The difficulties here, however, were not enough to push down Diageo worldwide, with its profit well ahead of market expectations.

The stock gained as much as 6pc, before closing up more than 4.5pc in London trading.

Diageo's "medium-term" goal to improve sales on an organic basis by an average 6pc -- stronger than last year's 5pc growth -- was jumped on by analysts as a positive step.

The brewer said business in July and August held at the levels of the previous six months, providing some relief for investors after brewer Heineken reported a weakening in sales during that time on Wednesday.

"The clarity on the medium-term outlook is welcome," said Martin Deboo, an analyst at Investec Securities in London. Diageo's commitment to "decent margin improvement" is also positive, he added.

The group said it hoped to improve operating margin by 200 basis points in the next three years, and to grow earnings per share at a "double-digit" rate.

"Medium-term guidance looks to be setting targets that are tough but achievable and also make Diageo look attractive as an investment proposition if achieved," said Phil Carroll, an analyst at Shore Capital in London.

Irish Independent

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