Diageo plc (LON:DGE) benefits from exposure to fast-growth markets.
Diageo (LSE: DGE) (NYSE: DEO.US) issued its half-time results this morning, which showed "a strong business getting stronger", as the shares lifted over 25p to reach 1,879p -- only 7p off their five-year high of 1,886p.
Total volumes increased 1% (6% on a reported basis) to 88.8m units, with Latin America and the Caribbean displaying a 7% rise, Africa lifting 3% and North America and Asia Pacific both up by 1%.
Pushing this emerging-market opportunity, marketing spend was up 5% organically to £926m, helping these fast-growth markets contribute to 42% of Diageo's net sales in the half. This helped offset the disappointing performance in Europe that brought the volume average down, decreasing 3% year on year.
Elsewhere in the interim results, net sales saw organic growth of 5% to £6.04bn against £5.76bn from H1 2012. Operating profit (before exceptional items) increased 9% organically, to £2.03bn from £1.87bn in the first half of last year.
That's with transaction and integration costs of £29m, including £21m in respect of the United Spirits deal, which stalled over the weekend as Indian authorities questioned whether a put clause in the agreement was compliant with Indian law, and the deal is now expected to be delayed until the second quarter of the year.
Chief executive Paul Walsh commented:
"These results reflect the global strength of our strategic brands, our leadership in the US spirits market and our increasing presence in the fastest growing markets of the world. Our expanding reach to emerging middle-class consumers in faster growing markets was the key driver of our volume growth, while net sales growth was driven by our pricing strategy and premiumisation, especially in the US. This drove gross margin expansion, which together with our continued focus on operating efficiencies, delivered operating margin improvement.
"This is a strong set of results, confirming our medium term guidance and supporting our decision to increase the interim dividend by 9%."
Shareholders would have been encouraged by the free cash flow on Diageo's books, now standing at £708m, while earnings per share (pre-exceptionals) lifted 9% to 60.9p. The interim dividend also increased 9% year on year, to 18.10p, which is about what analysts were expecting, putting the shares on a prospective yield of 2.4%.
A reliance on fast-growth markets is a regular theme we're seeing this year, following Unilever's declaration that 55% of its turnover now comes from emerging markets, and with Diageo capitalising on the trend too, I wouldn't be surprised to see more companies with exposure to fast-growth markets benefiting this year. As it is, Diageo is able to call itself, as it does, "a strong business getting stronger".
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> Sam owns shares in Diageo. The Motley Fool has recommended shares in Unilever.
