Recession not good for Guinness as Irish sales droop

Fri, Aug 26, 2011, 01:00

THE RECESSION appears to be driving Irish people away from drink.

Diageo, the multinational that owns Guinness, said yesterday that increased unemployment and high taxes hit sales of the black stuff and other beers in Ireland in the 12 months ended June 30th.

The group’s global sales were up 5 per cent at £9.9 billion from £9.8 billion over the year, while operating profits grew at a similar rate to £2.9 billion from £2.75 billion. Its net surplus for the year increased to £1.9 billion from £1.6 billion.

London-based Diageo posted underlying earnings of 83.6 pence per share while it increased its full year dividend by 6 per cent to 40.4 pence a share.

However, in Ireland, it said that high unemployment and personal taxes hit consumer spending, particularly in the pub trade.

“Guinness remained the best selling beer in Ireland, but net sales declined due to lower sales in the on trade,” Diageo said.

It did confirm that more people are drinking at home, as packaged beer sales from off-licences were up. The group also increased its share of the Irish spirits market. Sales of these products were up 2 per cent, partly driven by growing volumes of Captain Morgan’s rum.

Diageo’s shares added 4.7 per cent to £11.71 in London in early morning trade, and were up as much as 6 per cent later in the day after its executives gave positive updates on its sales performance since June and on future earnings targets.

The group is aiming for “double-digit” earnings per share growth over the next three years, and is seeking to boost operating margins by 2 per cent over the same timeframe.

Diageo owns a range of high-profile drinks brands, including Smirnoff vodka and Tanqueray gin.

Sales in Europe were down 3 per cent, but the performance of Scotch whisky and its more expensive “reserve brands”, including Tanqueray Ten gin and Ron Zacapa rum, helped offset tough conditions on the continent.

Sales and operating profit rose in all regions apart from Europe, the distiller said. Sales in North America rose 3 per cent as consumers bought more spirits in the US, the world’s biggest market, including Ciroc vodka.

Sales in emerging markets in Latin America, Africa and Asia also grew strongly.

Diageo’s strong performance was in direct contrast to that of Heineken, which reported earlier in the week that it expected profits to be flat as a result of low consumer spending and the poor summer.

Last month, Diageo said it would invest €100 million in redeveloping its site and facilities at St James’s Gate in Dublin, where it brews Guinness. Plans are due to be lodged in the autumn. – (Additional reporting Bloomberg / Reuters)