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Diageo's 2014: not a vintage year

Thursday, July 31, 2014 - 02:21

Diageo earnings disappoint after a slowdown in China and volatility in other emerging markets - but the drinks-making giant is promising it'll serve up something better next year, according to CEO Ivan Menezes. David Pollard reports

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There was a time when emerging markets put the froth into Diageo numbers. Not so much any more. Over the past year, the maker of Guinness - and Johnnie Walker Scotch whisky, Smirnoff vodka and many others - has been wrestling with a host of issues in those markets. Now it's posted weaker-than-expected earnings, hurt by a slowdown in China and volatility elsewhere, with net sales down nine percent. In China, sales are down 20 percent. And it's taking an impairment charge of just under £80 million on the value of its nearly 40 percent stake in the maker of the premium, high-end spirit, baiju. Once popular at lavish government parties, sales have suffered due to government-enforced austerity measures. Diageo chief executive, Ivan Menezes. SOUNDBITE (English), IVAN MENEZES, CEO, DIAGEO: ''The scale of our baiju business, as I said, has reduced substantially with the dislocation in the market place. We've taken corrective actions, we've restructured our cost base, we're innovating at lower price points at about £40, £50 a bottle as opposed to £70, £80 pounds a bottle. Baiju is 60 percent of the Chinese beverage alcohol business, it's been there for two thousand years, it's a very profitable sector, and we're going to build our business from here. '' In total in southeast Asia, volume fell 25 percent, as retailers and wholesalers also reduced inventories amid a slowdown due to tax increases and unrest in Thailand. And in Kenya, the company's value brand beer Senator Keg saw sales fall 80 percent after an excise duty increase. Overall, earnings per share are down three pence. But emerging markets are, says Diageo, still the place to be. SOUNDBITE (English), IVAN MENEZES, CEO, DIAGEO: ''We have just this year taken the majority stake of the leading spirits business in India. This now becomes our second-biggest market. We have very strong positions in Kenya, Nigeria, Brazil, Mexico So Diageo's emerging markets footprint is quite diversified across Africa, Asia and Latin America, so the prognosis for sustained, good-quality growth here remains good.'' It also says developed markets like the U.S. remain strong. And 2015, say its CEO, will definitely be a better year.

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Diageo's 2014: not a vintage year

Thursday, July 31, 2014 - 02:21