Diageo announce 5% rise in sales

DIAGEO, owners of the Guinness Group, said net underlying sales rose 5% in the July–September quarter, despite weaker sales in Europe.

The world’s biggest spirits producer said sales in emerging markets lifted sales over the three-month period. It has left its forecast for higher profits for the year unchanged despite the first quarter weakness encountered in Europe.

Shares were down 1.75% in early trading following the trading update.

The group, which owns several key spirits brands such as Smirnoff vodka, said results out of Russia, Latin America, Africa and Asia helped offset the difficult conditions in Europe.

Chief executive Paul Walsh said the group faced tough trading in Greece, while in Spain net sales were down sharply year-on-year, as those southern European economies were worst affected by the banking crisis.

“The consumer environment in Europe is slightly weaker than we expected,” Mr Walsh said in a trading update for its July-September first quarter, ahead of the group’s AGM next Thursday.

Northern Europe again delivered good net sales growth and Diageo’s business in Russia continues to grow strongly, he said.

Its European operations account for about a third of overall profit while Spain, along with Britain and Ireland, account for over half of its European sales.

The group reported a strong performance from operations in Latin America, Africa and Asia Pacific, while North America posted stronger growth than in the previous year.

In the three months ended September 30, 2010, net sales were £2.06 billion (€2.27bn) up 5% on an organic basis from £1.9bn in the quarter ended September 30, 2009.

Mr Walsh said the year started “as we thought it would with a fragile economic and consumer environment in the developed markets and stronger consumer demand in the developing markets.”

Strong performance in Northern Europe was again a feature, while Diageo’s business in Russia continued to grow strongly, he said.

Last year’s global recession hit the group, as drinkers switched from favourite brands to cheaper offerings.

The year was also characterised by de-stocking as wholesalers sold off product to improve cash flows.