Drinks giant Diageo sees sales go flat

DRINKS group Diageo, the owner of Guinness, said sales have continue to slow down.

Ahead of the release of full-year results in September, the company said alcohol sales in Europe were difficult and there was also a slow-down in sales in the US.

“However, organic operating profit growth for the year ended 30 June 2005 is expected to be in line with the guidance of 6% given at the time of the interim results,” the company said in a statement to the stock exchange yesterday.

“Looking forward to the new financial year Diageo believes that organic growth in volume will be similar to that achieved in the year just ended while a renewed focus on achieving price increases together with the benefits of the planned cost efficiency programme will deliver continued improvement in operating margin.”

European ‘net’ sales, which were down 1% in the first half of its financial year were likely to be down further in the second half, the company added.

Diageo did not give a breakdown of Guinness volumes or its overall sales in Ireland. The company said difficult trading conditions led to a slowdown in the performance of its beer brands. However, the group’s wine brands continued to grow strongly in their key markets of the United States and Britain.

The company said a cost-saving programme was being implemented as planned and was on track to deliver the forecast benefits of around £50 million during the next financial year.

The group also revealed it was in talks that could see it make an exceptional payment of about £150m this year to cover all future payments to the Thalidomide Trust, to which it contributes annually.

The company said that it will also seek price increases in the coming years. It did not say if the increases will apply to the Irish market.

Its eight key global brands - such as Smirnoff, Baileys liqueur and Captain Morgan rum - saw underlying volumes in the year to June 30, 2005 rise 4%, similar to first-half growth, but Diageo saw a slowdown in the growth of its beer brands.

The company will be hoping for a sales boost in the spirits market after the £200m acquisition of Bushmills Whiskey earlier this year.

For the 2005/2006 year, Diageo expects similar growth in organic volumes to that achieved in the year just ended, while it sees price rises and cost savings boosting operating margins.

Diageo said exchange rates will hit pre-tax pre-exceptional profits by “£80m in 2004/2005, in line with its previous estimates, but in 2005/2006 the hit is estimated at £50m rather than £80m previously estimated.

The company will releases its annual results on September 1.