Diageo profits fall amid tough European trading

Diageo, the world?s biggest spirits group, on Thursday unveiled an almost 5 per cent drop in pre-tax profits partly on the back of a challenging consumer environment in Europe.

The maker of Smirnoff vodka, Baileys liqueur and Guinness said pre-tax profits before exceptional items fell from ?1.3bn ($2.4bn) to ?1.24bn. Part of this drop was also due to the group?s sale of two-thirds of its 20 per cent stake in General Mills, the US cereal maker.

The results were broadly in line with analyst expectations of between ?1.23bn and ?1.27bn in pre-tax profit for the first half.

Paul Walsh, chief executive said: ?We have made a good start to the year and we can maintain our full-year guidance of 6 per cent organic operating profit growth.?

He added that the ?group?s main engines for growth? were its global priority brands, which include Smirnoff and the Johnny Walker label.

But the company warned that the adverse impact from exchange rate movements will wipe ?80m off pre-tax profits for the full year in 2005 and the same amount again in 2006.

Sales volumes grew 5 per cent in North America, well ahead of regional market growth of 2 per cent. But in the European markets, which the company described as ?tough?, they grew only 1 per cent.

The company?s Johnny Walker label performed strongly with net sales up 14 per cent and growth in all regions on the back of price increases in selected regions of the US coupled with growth in the drink?s Black Label line.

Sales of Guinness were flat due to difficult trading conditions in Africa, particularly Nigeria. But the brand returned to growth in the UK and slowed its decline in Ireland.

Baileys saw sliding sales and volume due to lower sales of Baileys Minis.

Sales of J&B declined due to lower sales in Spain, the brands biggest single market which represents almost 50 per cent of volume.

Turnover for the six months to 31 December 2004 dipped from ?5bn to ?4.9bn. Earnings per share were 29p compared to 29.3p last time. The interim dividend rose to 11.35p from 10.6p.

Diageo?s shares, which have underperformed the FTSE 100 index by about 10 per cent over the past year, were trading down 0.4 per cent or 3p at 742p in early morning trading valuing the group at about ?22.6bn.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.