Diageo ups payout as sales surge

Bloomberg

Bottles of Johnnie Walker Black Label whisky pass along the production line at Diageo Plc's Shieldhall factory in Glasgow, Scotland, on Monday, July 11, 2011. Diageo, which makes whiskies including Johnnie Walker and J&B, is working on plans to boost production at its existing distilleries by more than 10 million liters per annum over the next two to three years, it said. Photographer: Mike Wilkinson/Bloomberg

Sarah Young London

Diageo has increased its payout to shareholders, confident that buoyant demand for whisky and spirits in Asia and Africa will help the biggest spirits group to hit its medium-term targets.

The UK-based maker of Johnnie Walker whisky and Smirnoff vodka said yesterday that it was raising its full-year dividend by 8 percent to 44p (R5.70) a share, after emerging markets drove sales and profit higher in the year to June.

Exposure to fast-growing markets in Africa, Asia and Latin America meant Diageo outshone Dutch brewer Heineken, which posted a fall in first-half profit on Wednesday, hurt by weak European sales.

“Diageo has delivered on its promises today. The 8 percent increase in dividend reads encouragingly,” Investec analyst Martin Deboo said.

The liquor leader has a dividend yield of 2.9 percent for the 2011/12 financial year, according to Thomson Reuters Starmine. That’s more than the 2.1 percent ratio of French arch-rival Pernod Ricard, the second-largest spirits group.

To spur growth, Diageo is thought to be eyeing the purchase of a stake in Mexican tequila maker Jose Cuervo from its owners, the Beckmann family.

“We are continuing discussions with the Beckmann family given the end period for our distribution arrangement,” chief financial officer Deirdre Mahlan said yesterday, refusing to give details.

The group’s distribution deal with Jose Cuervo ends in June 2013. Analysts estimate the top tequila brand could be worth $3.4 billion (R28bn).

Diageo, which in 2011 set medium-term financial targets for 6 percent annual sales growth, posted an 8 percent rise in reported net sales in the year to June, with an outperformance by emerging markets where sales jumped 15 percent. Earnings a share rose 13 percent to 94p, beating a forecast of 93p.

Diageo expects half its turnover to come from Asian, African and Latin American markets by 2015, compared with 40 percent in this financial year.

The largest producer of Scotch whisky plans to invest £1bn in the drink over the next five years to meet growing demand from emerging markets.

A growing taste for spirits in Africa plus demand for Scotch in Latin America and Asia, particularly deluxe brands in south-east Asia and China, boosted Diageo’s sales this year, while the company said performance in its established North American and western European markets improved.

“We’re achieving what we set out to achieve in Europe. I wouldn’t declare victory, I think it’s still going to remain a challenging environment,” Mahlan said.

“We’re really pleased with the US business. We’ve had a really strong performance from our premium and super-premium brands.”

In North America, which accounts for around a third of Diageo’s sales, the first two months of the new fiscal year also started well, she added.

European sales were dragged down by declines in southern Europe, where governments are cutting spending and battling record high unemployment.

Markets in Spain, Portugal, Italy and Greece now accounted for just 5 percent of net global sales after declining in recent years, Diageo said. – Reuters