Diageo Cautious on 2011 Recovery

By Andrew Starke

Diageo’s global operations will continue to be influenced by gloomy forecasts for its core European business with little or no growth predicted for the continent over the 2011 financial year.

The company’s president for Europe, Andrew Morgan, has told analysts that the drinks giant sees no discernable economic recovery in Europe, with any profits likely to be offset by increased spending on advertising and promotion spend in the second half of the year.

He said the company had experienced a tough first half of financial year 2010 with sales slowly improving in the third quarter.

“We don't see a lot of growth in the base business in the coming year,” Morgan told Dow Jones Newswires.

“There's no economic recovery in Europe that we can see.”

Diageo is the world's largest alcoholic drinks maker, with brands such as Johnnie Walker, Smirnoff and Guinness. Europe represents almost a third of Diageo’s total sales.

Southern European countries like Greece, where Diageo has already curbed its investment, are of most concern over the remainder of the year with markets in Spain, Italy and Portugal also being closely scrutinised.

Drink sales in Ireland are also suffered a steep decline over the global financial crisis.

Morgan’s comments echo those of Diageo CEO, Paul Walsh, who in February this year said he saw little respite for the firm's premium drinks brands in key western markets over the medium term.

While Australia falls under Diageo Asia Pacific, which accounts for just five percent of Diageo’s operating profit, the region has been one of the success stories over the past year with Johnnie Walker’s success in the Chinese premium Scotch market a stand-out.

 

[Wed 30/06/2010 01:57:04]