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Tax changes send Diageo's first half net profit down 20 pct despite revenue gain
LONDON - A one-time tax hit sent profits at drinks company Diageo PLC's down 20 per cent in the last six months of 2011, despite rising income following a strong performance in emerging markets.
Diageo, whose brands include Johnnie Walker scotch, Guinness stout and Smirnoff vodka, said Thursday that its net profit for the period — the first half of its financial year — was 953 million pounds ($1.5 billion), down from 1.19 billion pounds a year earlier.
The company booked a one-time loss of 524 million pounds because of tax negotiations which stripped it of the right to certain tax deductions in future years. However, Diageo said the negotiations also promised to keep the company's effective tax rate at about 18 per cent, compared to 21.8 per cent in the last half of 2010.
Pretax profit rose 15 per cent to 1.86 billion pounds and revenue was up nearly 10 per cent to 7.83 billion pounds.
Paul Walsh, the company's chief executive, said emerging markets in Africa, Latin America and Europe have grown to account for nearly 40 per cent of its business.
Sales volume in Latin America grew by 14 per cent in the period, while Africa was up 7 per cent and Asia Pacific — including its developed markets — rose 5 per cent.
Revenue was dented by adverse currency movements in Kenya, Nigeria, South Africa and the United States.
Phil Carroll, analyst at Shore Capital, said Diageo was evolving from just being a stock investors should hold defensively at a time when economic conditions are tough.
"It is also becoming an emerging market growth story too and a structural growth story from the perspective of a growing spirits market," Carroll said.
Diageo shares were down 0.6 per cent at 1.4525 pence in morning trading on the London Stock Exchange.
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