BUSINESS LIVE: Diageo sales dip; Saga profits soar; Pets at Home trims guidance

HSBC has been fined £57.4million by the Bank of England’s Prudential Regulation Authority for ‘serious failings’ over customer deposit protection.

The fine is the second highest penalty ever imposed by the financial watchdog.

John Moore, senior investment manager at RBC Brewin Dolphin:

‘Last year, Diageo warned about the impact challenges in Latin America would have on its results – so that comes as no surprise.

‘Overall, the business is performing comparatively well elsewhere against a challenging backdrop and tough year-on-year comparisons.

‘Today’s statement provides greater clarity following the shock from Latin America last year, which will hopefully turn out to be a blip rather than an enduring problem.

‘It’s been a difficult 12 months for Diageo, but there are reasons to be positive over the medium term, as the business continues to invest and the trading environment improves.

‘Longer term, the group remains very strong and well positioned to benefit from trends in the drinks and spirits industry, with ample room for growth in a highly fragmented market.’

Diageo  profits fell in the first half as the drinks giant continues to suffer sluggish demand in the Latin American and Caribbean (LAC) regions.

Reported operating profit fell 11.1 per cent year-on-year to $3.3billion (£2.6billion) in the six months to 31 December, with operating profit margin dwindling by 329 basis points to 30.3 per cent.

Organic operating profit slipped 5.4 per cent, but would have increased by 0.9 per cent if LAC was excluded, the Johnnie Walker maker said on Tuesday.

The world’s most indebted property developer is being wound up.

Troubled Chinese giant Evergrande has been ordered into liquidation by a Hong Kong court in a move that could send shockwaves across the country’s housing market and the wider economy.

Aarin Chiekrie, equity analyst at Hargreaves Lansdown:

‘Diageo served up an expectedly underwhelming set of first-half results, leaving a bad taste in investors’ mouths.

‘The Guinness brewer has a strong portfolio of brands under its belt, including the likes of Smirnoff, Johnny Walker and Tanqueray. Despite the diversity of its drinks portfolio, the group measured a small revenue decline in the first half.

‘Diageo’s performance was held back by its stumbling Latin America and Caribbean region, where sales have been much weaker than originally anticipated. Against a strong comparable period last year, sales dropped by a staggering 23% as customers here have been consuming less and downtrading to cheaper alternatives.

‘Trading across the group’s other regions has remained positive, driven largely by price hikes. But given that the Latin America and Caribbean market is one of Diageo’s higher-margin territories, the sales decline is having an exaggerated impact on group profits, which tumbled 5.4% lower organically.

‘The profit outlook remains murky for the second half, with markets now forecasting a small decline in operating profit. The medium-term looks slightly brighter, but improvements in the Latin American and Caribbean market will be key to future margin expansion, and to a large extent, that’s outside of Diageo’s control.’

Kazakh carrier Air Astana will be worth up to £757million when it lists in London next month, valuing BAE Systems’ stake at £370million.

The airline – owned by the British defence giant and Kazakhstan’s sovereign wealth fund – yesterday set the price range for its initial public offering (IPO).

Air Astana’s float will offer BAE Systems – which owns 49 per cent of the airline – a windfall, depending on how much of its stake it decides to sell.

SSP Group, which operates food outlets at airports and train stations globally, said on Tuesday it had started its new fiscal year strongly, buoyed by a rebound in leisure travel, and forecast travel demand to remain resilient.

The group, which earns more than two-thirds of its turnover from airports, said like-for-like sales in the three months to 31 December grew by14.3 per cent year-on-year.

The Upper Crust owner posted an over 14 per cent sales growth in its first quarter, buoyed by a rebound in leisure travel, and also forecast travel demand to remain resilient.

‘There continues to be encouraging momentum in our key growth markets of North America and Asia Pacific and we have also delivered double-digit like-for-like growth in our more established markets of the UK & Ireland and Continental Europe,’ CEO Patrick Coveney said in a statement.

Pets at Home Group has cut full-year profit expectations after its retail business saw growth below its expectations as customers cut back spending on accessories for their pets.

The group, which also offers grooming and veterinary services, said it expects underlying profit before tax to be about £132million for the year, compared with its previous target of about £136million.

‘Our colleagues came together over our peak trading period to deliver a record sales performance, growing against a very strong performance in the prior year.

‘While a slower market over peak meant our sales growth didn’t quite hit the levels we expected, the business remains well positioned to benefit from long term growth in the sector as we continue to win share and grow volumes across food and deliver differentiated performance through our unique vets business.

‘Importantly, we will shortly follow up launching our new distribution centre with the launch of our new digital platform, in line with our target.

‘Our new digital platform is a key foundation of our growth strategy, bringing vastly improved user experience to our consumers, and creating opportunities to improve cross-sell into accessories and further grow share of wallet. With these foundations now in place we are well positioned for the future.’

Ryanair has trimmed its profit guidance for the year as it grapples with a higher fuel bill and an ongoing row with online travel agents.

The budget airline said it expects annual profits to hit £1.66billion, down from its previous estimate of £1.75billion.

This was a blow for chief executive Michael O’Leary, who is reportedly in line for a £85million bonus if the company posts a £1.8billion profit or shares hit a target of €21 for 28 days.

Saga expects annual underlying profit to more than double year-on-year, with the over-50s specialist betting on retired and wealthy Britons being less impacted by the cost-of-living crunch to keep up travel demand.

The London-listed holiday and insurance company, expects full-year revenue growth of 10 to 15 per cent, it said.

For the 2022/2023 year, Saga reported underlying pre-tax profit of £21.5million.

In September, Saga had forecast double-digit growth in annual revenue and said underlying profits would beat market estimates.

Mike Hazell, Saga Group CEO, said:

‘For 2023/24, Saga remains on track to deliver significant growth in revenue, in addition to an underlying profit more than double that of the prior year1, exceeding our previous guidance.

‘Our Cruise and Travel businesses have had an outstanding year, having taken around 120k passengers on holiday, with customers continuing to be drawn to the strength of the Saga brand and offer.

‘As a result, these businesses will return to profitability, in line with expectations. In Insurance, the market-wide inflationary environment and declining policy volumes are continuing to impact our performance.

‘The year ahead will see a continuation of these trends across our business. Bookings for the new seasons in Cruise and Travel are robust, showing good overall progress.’

Paddy Power’s owner dealt another blow to London as it set out plans to switch its main listing to New York. Shares in Flutter started trading on Wall Street for the first time yesterday following a ‘secondary’ listing.

And the company used the occasion to reveal it is hoping to move its ‘primary’ listing across the Atlantic – downgrading its status in London in the process.

Diageo missed first-half sales estimates after the world’s largest spirits maker suffered a sharp decline in the key markets of Latin America and the Caribbean.

The maker of Johnnie Walker whisky and Tanquery gin reported a 0.6 per cent fall in organic net sales for the six months ended 31 December, slightly missing analyst estimates for flat organic sales.

Diageo warned in November that sales in Latin America and the Caribbean were set to decline by over 20 per cent amid a build-up of unsold stock in Mexico and Brazil, where drinkers were buying less premium spirits.

‘As previously announced in November 2023, materially weaker performance in LAC, driven by fast-changing consumer sentiment and high inventory levels, significantly impacted total business performance.

‘Having conducted a review of inventory levels and monitored performance in the critical holiday season, we have taken action and have further plans to reduce inventory to more appropriate levels for the current consumer environment in the region by the end of fiscal 24. This is a key priority.’