Guinness warns of pounds 100m hit from sterling

Tom Stevenson
Friday 21 March 1997 00:02 GMT
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The soaring pound would hit Guinness's 1997 profits by pounds 60m and there could be a further pounds 40m hit next year if sterling maintained its current strength, the finance director, Phil Yea, said yesterday.

News of the currency hit took the shine off full-year results that showed an otherwise encouraging return to growth after years of stagnation. The shares focused on the better trading news and the hint of further share buy-backs to come, closing 15.5p higher at 501.5p.

Profit before tax of pounds 975m was pegged back by the extra interest paid on borrowings to fund last March's buy-back of 5 per cent of Guinness's shares. But for that, said the chairman, Tony Greener, profits would have broken through the pounds 1bn barrier for the first time. Thanks to the reduction in the equity base, which shrank further in January with the acquisition by the company of part of LVMH's 20 per cent holding, earnings per share were 6 per cent higher on a comparable basis at 34.8p. The dividend for the year rose 8 per cent to 16.1p.

Despite a 10 per cent increase in marketing spend at United Distillers, volumes of spirits rose by just 1 per cent around the world, with Scotch falling by 1 per cent, although the US market showed better growth in big brands than for many years. Price rises were hard to come by, averaging just 1.5 per cent. Divisional profits as a result were only pounds 5m higher at pounds 678m.

At home, the cost of maintaining a strong line on pricing, in a bid to reverse the downward spiral of price promotions and refocus on brand building, was a 9 per cent fall in profits. Overall marketing spend increased in the UK by 24 per cent and Mr Greener said the pain taken in 1996 had laid a strong foundation for growth this year.

In the smaller brewing arm, profits also nudged higher from pounds 270m to pounds 283m after strong growth in stout sales around the world was offset by weakness in the Spanish operation, Cruzcampo, and the cost of rolling out the Guinness brand into new markets. Marketing investment in Guinness has risen by 75 per cent since 1993.

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