Diageo profits holding up

Diageo, the world's largest spirits firm, says its profit growth is holding up despite tough trading conditions exacerbated by the war in Iraq and outbreak of the deadly SARS virus.

The maker of Smirnoff vodka, Johnnie Walker scotch and Guinness beer said it was performing well in its key US and UK markets despite a slowdown in consumer spending growth.

Diageo, formed in 1997 from the merger of drinks group Guinness and food and spirits firm Grand Metropolitan, has said its problems had been exacerbated by the Iraq war, when drinkers tended to stay at home in the evenings, and the outbreak of Severe Acute Respiratory Syndrome (SARS), which hit spending in Asia.

In a trading update for the year ended June 30, the firm said it did not expect to improve on the one percent growth in organic volumes and four percent growth in organic net sales achieved in the first half.

Diageo, which has sold food groups Pillsbury and Burger King to focus on spirits, said it expected to take a charge of £95m (€137m) to operating profits in the year to end-June 2004, due to its £1.4bn (€2bn) pension deficit.