Diageo income rises by 1.5%

Drinks group Diageo put in a strong performance in the second half of the year, but growth was driven by emerging markets as North America and Europe remained weak.

Diageo said strong performance in the second half of the year saw net sales rise 6 per cent. This led to a 2 per cent rise in organic operating profit for the year.

Volumes in Europe rose marginally and fell 2 per cent in the North American market, but sales in Latin America, the Caribbean and Africa showed better growth.

The company's net income rose 1.5 per cent to £1.63 billion for the year ended June 30th 2010.

Meanwhile, rising marketing spend in the second half of the year was offset by a cost reduction programme.

Chief executive Paul Walsh said the year had been one of "challenges and opportunities".

"Our performance was much stronger in the second half than in the first: our performance in the developing markets drove overall growth while markets in North America and Europe remained weak," he said.

"However, even though markets and categories have been affected in different ways and to differing degrees, we have been consistent in our focus to deliver growth and build a stronger business for the future."

In Europe, volumes rose 1 per cent and net sales were down 2 per cent as weaker trade conditions in Ireland and southern European markets impacted results. ""Europe remained a challenging region, impacted by weak consumer confidence and economic uncertainty," Diageo said in a statement.

In the Irish market, Diageo's net sales fell 8 per cent, but the beer and spirits brands gained market share and the rate of decline in the beverage alcohol market slowed. Net sales of Guinness fell 5 per cent but grew share, as did Harp and Smithwicks. Budweiser lost market share.

In contrast, net sales rise 5 per cent in Britain, with volume rising 9 per cent.

In the United States, cost savings led to increased gross margins. Volumes fell 2 per cent, driven mainly by lower volume in US spirits brands, while net sales were down 3 per cent. Operating profit remained flat.

"Although there were some signs of recovery in North America, the economy and consumer confidence remained weak," Diageo said.

Diageo raised the dividend for the year by 6 per cent. Looking ahead, it said it expects to at least maintain that rate of growth in the current fiscal year.

"The global diversity of our business, together with the strength and range of our brands and the agility we have demonstrated gives us confidence that in fiscal 2011 we will be able to improve on the organic operating profit growth we have delivered this year," Mr Walsh said.