Move to off-trade hits Diageo figures

Guinness and spirits producer Diageo has reported tough trading conditions in the UK and Ireland in the six months to 31 December 2006.

Guinness volume declined by 7% because of the shift

from the on-trade to the off-trade and "exceptionally-warm weather". Smirnoff, Baileys, Bells and Gordon's all saw volumes decline in the

UK. Smirnoff Ice was down 17% in the UK as the segment continued its decline.

The company reported that a reduction in retailer-funded promotions and the smoking ban introduced in Scotland in March 2006 resulted in a volume decline of 1% in the alcohol beverage market.

The company added: "In addition, there has been a consumer trend towards value brands and a reduction in customer stock levels ahead of the introduction of strip stamps.

"Diageo increased prices in July 2006 and moderated its Christmas promotions to protect brand equity and increase net sales per case. This provided a challenging background for Diageo's performance and as a result, volume declined 12% and net sales were down 9%."

Diageo added that, in Ireland, on-trade beer volume continued to decline, while off-trade beer and overall wine and spirits con-sumption increased. It said: "Consumers are widening their repertoire and becoming more value conscious, particularly in the off-trade. These trends affected Diageo's performance in Ireland."

Globally, Diageo performed well with excellent performances in North America and elsewhere internationally to deliver an 8% rise in underlying profits to £1.31bn and comparable net sales up 6% to £4.02bn.

Profits in Europe were unchanged despite the weak performance in the UK and Ireland.

whisky galore

Diageo is to invest £100m

to build a new distillery in Scotland because of booming demand in Brazil, Mexico, China and Russia.

The world's biggest

whisky producer, Diageo has 27 distilleries in

Scotland. Its Johnnie Walker brand accounts for 10% of the world market with five bottles drunk every second.

Diageo will spend £40m on the distillery in Roseisle on Speyside. It will invest a further £40m on expanding its grain distillery in Cameronbridge, Fife. Another £20m will be spent on expanding bottling facilities at the firm's packing plant in Glasgow and extra warehousing space elsewhere.

Chancellor Gordon

Brown said of the plans: "This is a serious long-term investment by Diageo."