Diageo’s half-year results will be pored over for evidence that the Guinness-to-Burger King giant has coped with the downturn in demand from emerging markets and is making the most of its brands.
The fall in Asian demand has certainly hurt the company. Industry experts estimate that sales of Johnnie Walker Black Label whisky fell by 12% in volume last year, while Red Label fell 6%. But the economic crisis in Asia, where the Johnnie Walker logo is a status symbol, may now be history.
Industry-watchers are now more worried about the downturn in Latin America.
Brands are still crucial to the company’s success. Diageo has been rationalising the stable of brands it inherited from the merger of Guinness and Grand Metropolitan in December 1997. It is investing heavily in its remaining brands but analysts say there could be further disposals.
Analysts say the new accounting standards on brands, FRS10 and 11, will have only a minor impact on Diageo’s results. But pressure is mounting to allow companies to capitalise internally generated branding assets such as, in Diageo’s case, Baileys.
Central to the company’s international operations is Philip Yea, the 43-year-old who was appointed group FD after four years as FD of Guinness. His cash management is another crucial issue. From 2000, Diageo is likely to generate #1bn in cash each year.
Share buybacks could be on the cards.
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