Diageo rises 26% but drops again in 2009
Diageo sees encouraging share price increases for second half of 2008 but early trading results this year force restructuring
11 March 2009
Diageo reports half-year earnings show an increase of 26%, bringing it out ahead of forecasts for the period. The drinks giant records underlying earnings per share of 45.6 pence for the six months to December 2008, compared with a consensus of 43 pence and a range of 40.9 to 46.8 pence.
Share prices have fallen almost 6% in early trading this year, however, forcing to the company to restructure and cut £100 million from its cost base throughout 2009/2010. The move is also largely due to the general global slowdown, which has also led to Diageo cutting its target for full year operating profit growth from 7 to 9% to 4 to 6%.
In a statement to the media, chief executive Paul Walsh said: “Current economic trends indicate that consumer confidence will reduce further and the outlook for the second half is more difficult to predict.”
Mega-brewery plans shelved
Diageo’s plan to invest €650million in a new brewery have been put on hold, due to the economy’s sharp decline. The global drinks group has said that it will be carrying out a strategic review of its investments in Dublin, which will last “several months.”
In a statement, Diageo said: “As a result of the current difficult global economic situation…Diageo has decided to conduct a re-evaluation of this brewing investment programme in order to ensure its scope remains appropriate in the changed economic environment.”
Last September Diageo announced plans to build a new ‘super-brewery’ on a 73-acre greenfield site in Leixlip, Co Kildare, close to where Arthur Guinness established his first operation in 1755. It planned to buy 50 acres from the Guinness family and 23 acres from Kildare Country Council.
A spokeswoman for Diageo was reported to have confirmed the group’s commitment to the Irish market. “We want to make sure the assumptions we made are still the right ones but there is no doubting our commitment to the Irish market.”
It is understood that the purchase of the land from the Guinness family has still not been concluded however. Diageo’s plan to close breweries in Dundalk and Kilkenny and to scale back its brewing activities at its iconic St James’s Gate plant in Dublin have also been shelved for now.
Around 450 Guinness workers were due to be made redundant as a result of the brewery closures.
Diageo is reported to have said only that the decision would form part of its review and that the breweries are not due to close until 2013.