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Diageo Reports Disappointing Profits

Published on Jul 31 2014 11:02 AM in Drinks

Diageo Reports Disappointing Profits

Diageo, the producers of Guinness and Baileys, has reported much lower profits for last year than anticipated and has said that a number of factors contributed to this. Net sales were down to £10...

Diageo, the producers of Guinness and Baileys, has reported much lower profits for last year than anticipated and has said that a number of factors contributed to this.

Net sales were down to £10.3 billion for the 12 months ending 30 June, a fall of 9 per cent from the previous year. Net profit fell to £2.25 billion from £2.45 billion for the previous year. Earnings before interest and taxes, excluding some items, was £3.13 billion as opposed to the £3.2 billion estimate.

Diageo has been one of the many beverage makers to suffer from China's so called anti-extravagance tax, with sales in China declining 5.7 per cent in three months. This was one of the main reasons overall figures were down. However, earnings were also hurt by currency devaluations in emerging markets and a tax on one of its beers in Kenya.

Irish sales also experienced a drop, with net sales falling by 4 per cent, largely due to the increase in excise duty, which is a bone of contention with producers and publicans alike.

Global sales of Guinness fell by 1 per cent, which Diageo said was attributable to 'challenging' conditions in Nigeria and the increase in popularity of craft beers in North America. However, sales of Guinness in east Africa rose by 19 per cent due to an increase in marketing spend.

There was little change in the sales figures for Baileys for the year, with slightly lower sales in western Europe balanced by higher sales in the UK. Bushmills was one of Diageo's better performing brands; its global sales increased by 7 per cent. Organic sales did experience slight growth and rose by 0.4 per cent in the period.

CEO Ivan Menezes said, "This year our business has faced macroeconomic and market specific challenges that have impacted our top line performance. But we have gained share and expanded margin while continuing to invest in our brands, our markets and our people to create a stronger business that will deliver on the long term growth opportunities of this attractive industry."

Volume sales fell in most areas with the biggest fall in Asia - 20 per cent in China and 25 per cent in South East Asia. The best result for Diageo was in Western Europe which saw no change in sales volume. The company stated that it expects improvement in emerging market performance in the second half of the current fiscal year.

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