Diageo toasts impressive rise in first-half profits

The drinks giant Diageo shrugged off weakness in Europe and the impact from soaring oil prices and hurricanes to deliver a 7 per cent rise in interim profits yesterday.

The performance reassured investors after the company warned in November that first-half sales and profits growth could be blown off course by the US hurricanes. The group, whose brands include Guinness, Johnnie Walker whisky, Gordon's gin and Smirnoff vodka, reported underlying sales up 5 per cent and operating profits up 7 per cent to £1.26bn in the first half.

The chief executive, Paul Walsh, predicted the group would meet its full-year target for 7 per cent operating profit growth. Diageo said the hurricanes cost it £4m to £5m, while higher oil prices landed it with a £10m bill. Michael Bleakley, at CSFB, said: "These results show that Diageo has the flexibility to meet its targets - 'whatever the weather'."

The company has shifted marketing spending from Europe, where net sales fell 1 per cent, to new markets such as Brazil, Russia, India and China (Bric). Marketing spending in Europe was cut by 7 per cent in the first half. While the Bric economies comprise only 4 per cent of group volumes, their net sales (after deducting excise duties) shot up more than 40 per cent. Their percentage contribution doubled over the past two years and is expected to double again over the next couple of years.

Diageo raised its share of the US spirits market and posted sales growth of 7 per cent, though rising costs limited profits growth to 5 per cent. In Europe, operating profits climbed 7 per cent after Diageo created a pan-European structure to keep costs down. The group is trying to reverse its poor performance of Guinness in Ireland and Britain, where beer markets are in decline.