City raises glass to Diageo

By Anne Bruce

- Last updated on GMT

Related tags Diageo Drinks giant diageo Developing country

City raises glass to Diageo
Drinks group Diageo pleased city analysts today reporting a 7% year-on-year growth in like-for-like sales in the third quarter, with sales volumes up 2%.

The Guinness to Baileys brand owner said in a trading statement for the nine months to March 31, 2011 that overall trading in Europe continued to be challenging.

However in the quarter to March 31, stronger prices in Great Britain and Russia offset weaker prices in Ireland and Greece and a deterioration of the on trade in Spain.

Martin Deboo, an analyst at Investec Securities, told that the City had only been expecting 1-3% organic growth from Diageo. However, financial technicalities such as a change in Diageo’s foreign exchange guidance was likely to mean that the growth figures released today would not be reflected in full-year results.

Emerging market growth

Deboo said that, like Pernod Ricard, much of Diageo’s sales growth is coming from emerging and developing markets. "The information regarding performance in the UK would suggest that Diageo is trading off a loss of volume against improved prices. In the longer term that might prejudice a company’s share against competitors in the market.”

Diageo chief executive Paul Walsh said: "Trading in the third quarter was in line with our expectations that the second half would be stronger than the first. We remain confident that our up weighted marketing investment together with the increased investment we have made in emerging markets in the year will continue to deliver improving performance.”

Drinks giant Diageo anticipates big growth from developing countries in the medium-term, and is planning further acquisitions in these markets given difficult trading conditions in mature markets such as Europe and North America.

Countries singled out by Walsh include India, Mexico, Colombia, South Africa, Nigeria and Ethiopia. Diageo recently bought Turkey’s largest spirits producer​, Mey İçki, and Walsh hinted in late February that more deals are on the horizon.

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