Europe Has Tea Parties, Too. They’ve Just Learned To Compromise

Europe’s Car Sales Rally, Thanks To Discounts, Dealer Action

Diageo Plc, the world’s biggest spirits group, expects slightly higher profits growth this year driven by developing markets but a cautious outlook hit its shares after meeting forecasts for annual earnings. Credit: Reuters/David Moir By Martinne Geller LONDON | Thu Oct 17, 2013 10:54am BST LONDON (Reuters) – Strong sales of alcohol in the Americas have helped European drinks firms to offset sluggish or non-existent growth in Europe and Asia. Diageo Plc (DGE.L), the world’s biggest spirits company, reported a 3.1 percent rise in sales for its first quarter, ended on September 30. While sales rose 10.9 percent in Latin America and the Caribbean, 5.1 percent in North America, they grew only 1.3 percent in Africa, Eastern Europe and Turkey and 0.6 percent in Asia Pacific – markets whose growth drinks firms have been relying on as austerity-hit Western Europe struggles. Sales in Western Europe fell 1.1 percent. Several analysts said Diageo’s results were below consensus expectations for an overall sales rise of 4 percent. Investec analyst Martin Deboo said the results for Diageo, were maker of Johnnie Walker whisky and Smirnoff vodka, fitted his sell thesis – “that emerging markets are set to make life difficult for Diageo for a while”. Both Diageo and France’s Remy Cointreau (RCOP.PA) cited a Chinese government crackdown on gift-giving as a drag on sales there. Remy, which generates about 40 percent of its operating profit from cognac sales in China, said wholesalers were reducing inventories after sales fell short of expectations during the Chinese New Year. The maker of Remy Martin cognac, Cointreau liqueur and Mount Gay Rum said revenue declined 5.3 percent on a like-for-like basis to 294.4 million euros (247 million pounds) in the three months to September 30, its second quarter, compared with a 2.3 percent decline in the previous quarter. Sales of Remy Martin cognac fell 8.3 percent like-for-like, compared with a 12.9 percent slump in the first quarter, and the firm said China would continue to weigh on sales in the coming months. A recent weakening of various currencies against the U.S. dollar has also hit results. Diageo, which made a net profit of 2.59 billion pounds in the year to June 30, said that, based on spot rates, foreign exchange factors would reduce 2014 operating profit by 165 million pounds.

SABMiller Restores Volume Growth Amid Improvement in Europe

Peter Fuss, partner at consultants Ernst & Young Ernst & Young s Global Automotive Center in Frankfurt, Germany, said the recovery in car sales was down to the improvement in Europes economic outlook, with the Euro currency zone pulling out of recession during the second half of 2013. But with factory use down to less than 65 per cent by manufacturers, according to Fuss, this underlines the chronic overcapacity in Europe, which remains unresolved because of pressure from unions and governments to resist rationalisation. The European industry is looking for a bailout along the lines of the U.S. intervention on behalf of bankrupt GM and Chrysler, to allow it to finally shut-down uneconomic factories. But given the financial crisis in the euro zone, this is simply unaffordable. Ernst & Young expects an overall decline of three per cent in Western Europe for the whole year, and only modest growth next year. This growth will continue to be artificial one that is driven by discounts and self-registrations. We estimate it will take at least two years for the market to witness the real sales recovery, driven by replacement demand. As a result, profits for automakers are likely to remain challenged at least until 2014 is out, Fuss said. According to ACEA, Volkswagen of Germany remains the market leader with just under 25 per cent of the market. VW is still strongly profitable, and has brands like Audi Audi , SEAT, Skoda, Lamborghini and Bentley in its stable. In second place is PSA Peugeot Peugeot -Citroen of France at just over 11 per cent, followed by GM Europes Opel, Vauxhall and Chevrolet brands, Renault Renault of France, Ford Europe and Fiat of Italy.

Organic volume in Europe slid 4 percent in the first half compared with the median estimate for a 5 percent decline. The performance represented an improvement on the first-quarters 7 percent decline. Sales to wholesalers at the brewers MillerCoors LLC unit in the U.S. slid 1.5 percent in the second quarter, better than the first quarters 5.3 percent drop. Declines in Coors Light and Miller Lite were partially offset by brands including Redds and Leinenkugel shandy, the company said. The brewer said it expects the consumer climates in both Europe and North America to remain under pressure. SABMiller said it achieved a strong performance in Africa, where volume rose 9 percent in the first half, and good progress in Latin America , South Africa and the Asia-Pacific region. The brewer gets the largest proportion of sales from emerging markets compared with its main rivals, helping compensate for declining beer sales in Europe and the U.S. Diageo Misses Volume rose 1 percent in Latin America, SABMillers largest region, in line with estimates. Civil unrest weighed on improvements in Colombia , though sales in Peru returned to growth in the second quarter after tax increases. Diageo said today that it saw headwinds in some faster-growing economies and missed analysts estimates for sales in both Asia and the Africa, Eastern Europe and Turkey region.

Finland has its True Finns, France its National Front. Germany has a brand-new Alternatives for Germany party. De Vries refers to these as issue entrepreneurs. They seize on questions that have been ignored by major partiessuch as immigration and the pace of European integrationand win enough votes to matter. To get into a coalition, these narrowly focused parties have to accept that there is more to governing than immigrants, or taxes, or global warming. If theyre hostile to compromise, theyre stuck on the outside, left to agitate for their ideas with no power to enact them or even to throw sand in the gears. Brooks Newmark, a Tory member of the British Parliament, says the Tories were lucky in the last election. The extreme right wing of the party broke off to form the U.K. Independence Party. Had they stayed within the fold, he says, UKIP-type members of Parliament could have held us hostage just as the Tea Party is doing to the Republicans. Without them, Newmark adds, the Tories still have been able to pass austerity budgets. In the U.S., members of the House and Senate allied with the Tea Party have the support of some percentage of voters for their unyielding stance on fiscal policy.