Guinness thanks goodness for its brewing business

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As Guinness found in the high-growth 1980s growing profits is easy when you can push through real, inflation-adjusted price rises each year. Each extra pound you charge falls straight through to the bottom line. With inflation in low single digits, however, consumers are much more sensitive to price and the 3 to 4 per cent increase flagged by the company yesterday is as much as can be expected. Achieving growth through volume improvements is hard work - each extra sale has a cost attached and the sort of marketing required can cost a fortune.

That is the gloomy background to yesterday's full-year figures from Guinness, which showed a marginal increase in pre-exceptional profits before tax from pounds 915m to pounds 940m. Earnings per share after a pounds 69m one-off restructuring charge slipped from 31.6p to 29.3p with only the dividend, up 8 per cent to 14.9p, showing any life.

All this confirmed how tough selling booze can be, even when you have some of the strongest brands in the business. The contribution from United Distillers slipped 4 per cent to pounds 673m and, while the Moet Hennessy associate looked good at pounds 111m, up from pounds 89m, stripping out exchange rates and other complicating factors meant it too saw a decline in trading profits.

Distillers was dragged down by another poor performance from recession- hit Japan, competition at the cheaper end of the US market and a still depressed European market. Profits actually improved a touch at home but it was not enough.

Thank goodness then for the brewing activities, which saw profits rise 7 per cent to pounds 270m thanks to some enviable growth rates for the black stuff in unlikely places such as Malaysia and Indonesia. But it was a struggle - the marketing spend to gain that growth was a chunky pounds 191m, up 19 per cent from 1994. In contrast to the spend on Johnnie Walker, which over the past three years has had a rapid payback, the return on brewing's marketing drop is pretty pedestrian.

The investment attractions of Guinness are a hard call. In its favour, the company has an unrivalled portfolio of brands, strong cash flow, and an unparalleled global reach, with exposure to the world's fastest growing regions. The counter arguments include a poor pricing environment, the uphill struggle to persuade high-spending youngsters that spirits are not their parents' tipple, and a possible overhang from LVMH's less than long-term 20 per cent stake.

On the basis of pre-tax profits forecasts this year of pounds 955m and earnings of 32.6p, the shares, down 11p to 461p yesterday, stand on a prospective p/e of 14. A long-term hold on growing global prosperity, but short-term they are high enough.