Asia's taste for whisky tops up Diageo profits

Group Business Correspondent

Friday 4 May 2012

DRINKS giant Diageo warned about the prospects for sales in western Europe but said the thirst for Scotch among affluent consumers in emerging markets will help the company maintain growth.

DEMAND: High-quality Scotch is growing increasingly popular in the Asia Pacific market.

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MARK WILLIAMSON

In an update on trading, the Johnnie Walker whisky and Smirnoff vodka-maker provided renewed evidence of the challenges facing exporters as the problems in the eurozone stifle demand in important markets.

London-based Diageo said underlying sales in Europe fell by 1% annually in the first nine months, with even the strong demand in Germany proving unable to compensate for problems elsewhere.

While the company did not break down sales by country, Diageo confirmed that trends in the third quarter had been in line with the second quarter. First half sales in western Europe trod water.At Diageo's interim results announcement in February, its executives highlighted the polarisation of the European market between fast-growing areas such as Russia and Western countries, including the UK, in which first-half sales fell by 2%.The head of the European business, Andrew Morgan, said at the time that Diageo had cut its marketing spend in Greece and Spain because there was no point spending large sums where customers were struggling to buy its products.In yesterday's update Diageo indicated that directors do not see any sign of an improvement in trading conditions in countries such as Spain, a significant export market for whisky producers, or the UK."Despite strong performance in markets such as Germany, we remain cautious for the outlook in western Europe," it said.But Diageo continues to reap the benefits of a successful attempt to cash in on the emergence of a new class of affluent consumers in countries that include India and China."In Asia Pacific, our premiumisation strategy in Scotch in the emerging Asian markets continues to deliver double-digit growth and therefore, while in Australia and North Asia [Japan and South Korea] consumer trends are weaker, the year to date performance is in line with the first half," Diageo told investors.Underlying sales increased by 10% in the first nine months annually in Asia Pacific.Diageo has developed products to capitalise on the trend for consumers in countries such as India to drink high-end Scotch whisky products such as aged single malts.Sales increased by 18% in Latin America and the Caribbean in the first nine months."Our year-to-date performance continues to demonstrate that Diageo is well positioned with our balance of businesses across categories and with a large and increasing presence in the faster growing emerging markets," said chief executive Paul Walsh yesterday.In the quarter ended March, Diageo grew underlying sales by 6%, excluding acquisitions and currency movements. Sales grew by 7% annually in the first nine months.Mr Walsh has said demographic change in emerging markets could support growth in sales of whisky for years. In February, he held out the possibility that Diageo could open another distillery in Scotland, where it employs 4000 people.Other whisky-makers, such as Highland Park distiller Edrington, have enjoyed big growth in sales to Asian countries.Scotch whisky exports reached a record £4.2bn in 2011, up 23% annually, according to the Scotch Whisky Association.Diageo's success may be regarded with mixed feelings in Kilmarnock following the company's controversial decision to close the historic bottling plant in the town in 2009, to centralise operations in other plants in Scotland.The closure process completed in March.Of the 707 people affected, 431 accepted redundancy packages, new roles were found for 194 at other sites while 82 were made redundant compulsorily.In a related development, 23 people lost their jobs when Diageo closed a distillery and cooperage at Port Dundas, Glasgow, where 145 people worked.

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Asia's taste for whisky tops up Diageo profits

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