Tags: Diageo | dividend | raise | Asia

Diageo Raises Dividend on Asia, Africa Prospects

Thursday, 23 August 2012 11:35 AM

The world's biggest spirits group, Diageo Plc, increased its payout to shareholders, confident that buoyant demand for whisky and spirits in Asia and Africa would help it hit medium-term targets.

The Johnnie Walker whisky and Smirnoff vodka maker on Thursday said it was raising its full-year dividend by 8 percent to 43.5 pence ($69) per share, after an increase in sales and profit driven by emerging markets.

Exposure to fast-growing markets in Africa, Asia and Latin America meant Diageo outshone Dutch brewer Heineken NV , which posted a decline 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 U.K.-based company has a dividend yield, a measure of the return investors get on the stock, 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 arch rival and world No. 2 spirits group Pernod Ricard, which is due to report its annual results on Aug. 30.

As part of its growth strategy, Diageo is believed to be eyeing the acquisition of a minority 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 told reporters on Thursday, refusing to be drawn on the nature of those talks.

The company's long-term distribution deal with Jose Cuervo ends in June 2013. Analysts estimate the world's best-selling tequila brand could be worth around $3.4 billion.

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 the end of June, with an outperformance by emerging markets where sales jumped 15 percent.

Earnings rose 13 percent to 94.2 pence a share, beating a company-compiled consensus forecast of 92.6 pence.


Diageo, which also sells Captain Morgan rum and Guinness beer, expects half its turnover to come from Asian, African and Latin American markets by 2015 compared with nearly 40 percent in this financial year.

The largest producer of Scotch whisky, Diageo plans to invest over 1 billion pounds ($1.5 billion) 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 to be a challenging environment," Mahlan said.

"We're really pleased with the U.S. 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 account for just 5 percent of net global sales, after declining in recent years, Diageo said.

Shares in Diageo were up 1 percent to 1,698 pence at 1037 GMT. ($1 = 0.6328 British pounds) 

© 2020 Thomson/Reuters. All rights reserved.

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Thursday, 23 August 2012 11:35 AM
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