DIAGEO BEATS GLOBAL DOWNTURN

       Spirits-maker's annual profit rises boosted by strong Guinness sales
       Diageo, the world`s biggest spirits - maker, posted a 7 per-cent rise in full-year net profit yesterday, benefiting from favorable currency exchange rates and cost-cutting amid weaker demand for many of its key products.
       The maker of Johnnie Walker whisky, Smirnoff vodka and Guinness stout cut its profit target for the current year because of concerns about the strength of an economic recovery, but also stressed that It believed the worst was over.
       Net profit for the 12 months to June 30 was 1.62 billion poundsBt89.4 billion), up from 1.52 billion pounds a year ago.
       Revenue rose 15 percent to 9.31 billion pounds, but sales were flat when the exchange rate gains were stripped out.
       "This has been a very challenging year. Overall however, our results demonstrate the resilience of our business," chief executive paul Walsh said in comments accompanying the results.
       "White the global economy appears to be stabilising, there is still uncertainty as to the sustainability and pace of any recovery and 2010 will be challenging, as we lap a strong first quarter and reasonable first half performance this year."
       Diageo has been hit by destocking stores and distributors keeping fewer of its products in the United States and weak demand in Europe.
       Last month it announced that it was cutting 900 jobs as it shutters a 199 year-old distillery and packaging plant as part of a cost-cutting restructure of operations in Scotland.
       With underlying sales flat, cost-cutting and exchange rate movements helped the company record organic operating profit growth the figure closely watched by analysts _ of 4 per-cent. That was at the lower end of the 4 - 6 per-cent range the company forecast in February, a prediction that was itself a lowered target from an earlier forecast of 7 to 9 percent growth.
       The company dropped the target further for the current financial year, pegging `low single digit` growth.
       Chief Financial Officer Nick Rose said that he was confident that the company`s core premium brands would not suffer long-term from the economic downturn, saying that the recent tendency of consumers to seek out value brands had been overstated.
       "The question that we are often being asked is: Is the basic business model of premiumisation over? We feel very strongly that it isn`t," Rose told reporters on a conference call.
       "Although we are not shouting about the green shoots as aggressively as some people are, we would say that the worst is over."
       Diageo, which also makes Baileys liqueur and Gordon`s gin, said that growth in spirits offset a weakness in wine and beer sales in its key US market over the year. While volumes were flat, US sales rose 1 per cent.
       The international division was a major contributor to the company`s earnings report, with continued growth in Africa and increases in Latin America driving net sales growth of 7 percent, despite a 4 percent drop in volumes. Guinness stout was a star performer, with sales up 15 per cent.
       In Europe, volumes fell 6 percent and net sales were down 5 percent. Spain and Ireland were particularly impacted by the worsening economic environment.
       The company`s Asia Pacific region was the worst performer. Volumes were down 11 percent and sales down 4 percent due to trade de-stocking and a decline in sales of ready-to-drink products in Australia after an increase in alcohol tax last year.
       AT A GLANCE
       The maker of Johnnie Walker whisky, Smirnoff vodka and Guinness stout cut its profit target for the current year because of concerns about the strength of an economic recovery, but also stressed that it believed the worst was over.
       Diageo has been hit by destocking stores and distributors keeping fewer of its products in the United States and weak demand in Europe.
       Chief Financial Officer Nick Rose said that he was confident that the company`s core premium brands would not suffer long-term from the economic downturn, saying that the recent tendency of consumers to seek out value brands had been overstated.
       Diageo, which also makes Baileys liqueur and Gordon`s gin, said that growth in spirits offset a weakness in wine and beer sales in its key U.S. market over the year.