Europe tough as Diageo profits slide

Diageo has reported a fall in annual profits, as it tackles lower sales in a tough European market, and a continued decline in global RTD sales.

The world's biggest alcoholic drinks group, owner of brands including Guinness, Smirnoff, Bell's, Bailey's and Gordon's reported pretax profits for the year to June 30 of £2.003bn, down from last year following the reduction of its stake in US food business General Mills.

Underlying operating profit rose 7 per cent, in line with targets, with the company expecting smilar growth in the year to June 2006.

In Great Britain, despite "a period of weakening economic and market conditions", volume and net sales were up 1 per cent and 2 per cent respectively, with growth driven by share gains in vodka, gin and cream liqueurs.

Price increases on Smirnoff Red, Guinness, Baileys, Gordon's, and Pimms helped offset the decline in the RTD segment, where Diageo owns market leader Smirnoff Ice. The Bailey's Glide RTD, launced two yeas ago, saw volumes halve across the year.

While Guinness volumes declined 1 per cent, price increases in April 2004 and February 2005 pushed net sales up 4 per cent.

In Ireland, the overall on-trade has declined by 5 per cent following the smoking ban introduced last year, with Diageo's volume sales down 4 per cent and net sales down 5 per cent. Guinness volumes were down 3 per cent, but as in Britain net sales were up due to price increases.

Paul Walsh, chief executive of Diageo, said: "The range of Diageo's premium drink brands together with our geographic reach gives us the ability to consistently deliver top and bottom line growth and strong cash flow.

"That is exactly what we have delivered this year. At the same time we have continued to build our brands, with over £1bn of marketing investment."

With Diageo's size making any further major aquisitions difficult on regulatory grounds, the company announced plans to continue to keep shareholders happy with its share buyback programme.