Diageo profits down 12.5%, sales down 3%

DIAGEO, the British food and drinks multinational that includes Guinness and Baileys, yesterday reported a 3 per cent drop in sales and a 12.5 per cent fall in profits for the six months to the end of December.

While neither subsidiary would release detailed figures, Guinness Ireland said its sales rose 3 per cent and Baileys said sales in Europe were up 3 per cent but had fallen by 1 per cent in North America.

The group reported first half pre-exceptional pre-tax profits in line with expectations at £1.051 billion sterling (€1.58 billion) for the six months to December 31st compared with £1.201 billion sterling a year earlier, but said profits were up 4 per cent on a comparative basis.

Diageo, which owns a string of other top consumer brands including Johnnie Walker Scotch whisky, Haagen-Dazs ice-cream and Burger King restaurants, said its profits were cut by the strength of sterling and its forced sell-off of Dewar's Scotch and Bombay gin.

"The general outlook is pretty positive. We are growing in our key markets, while Latin America is very unpredictable due to the Brazilian devaluation," said the company's chief executive, Mr John McGrath.

The group's chairman, Mr Tony Greener, said he was confident Diageo would produce further organic profits growth in its second half.

The managing director of Guinness Ireland, Mr Shaun Holliday, said its sales growth of 3 per cent for the period was ahead of the 2.3 per cent growth rate in the beer market as a whole. Guinness continued its dominance of the stout market, and export sales had risen 15 per cent in the period.

"The lager market continues to be very healthy in Ireland. In fact volumes last year grew at about 8 per cent. We performed very well in lagers - if you look at Budweiser in the last six months we've seen growth of close on 15 per cent," he added.

He said the lager market in the Republic was probably already slightly bigger than the market for stout, and predicted that Budweiser would catch up with its rival Heineken "within a couple of years".

Baileys said sales of its Irish Cream product rose around 3 per cent in Britain and the rest of Europe, but fell by 1 per cent in North America.

"Our whole focus as a business is on driving value-based management and economic profit rather than sales, so the sales figures don't give a true picture," said Baileys' chief executive, Mr Frank Fenn.

The brand was poised for a significant expansion in the US, he added, where consumption per capita was still only half that of neighbouring Canada.

For the group as a whole, Mr McGrath said strong organic profits growth of 11 per cent had come from the mature markets of Europe and North America, as it drove through cost savings after Diageo's formation from the Guinness and Grand Metropolitan merger in December 1997.

Diageo is paying a half-year dividend of 7.8 pence sterling a share, up 8 per cent. (