Diageo says fall in sales in Europe, mostly beer

Diageo, the world's biggest drinks group, reported a decline in European sales in the six months to the end of December, led in particular by weakness in Ireland, Britain and Spain. Claire Shoesmithreports.

In Ireland alone, total volume and net sales fell 3 per cent and 2 per cent respectively. Beer was the main culprit, with sales declining 3 per cent from the year-earlier period. Wine and spirit sales in Ireland, however, increased by 5 per cent each.

Michael Patten, a spokesman for Diageo Ireland, attributed the weaker overall performance to an increased tendency by Irish people to drink at home (off-trade) rather than in the pub (on-trade), and consumers widening their drinking repertoire.

According to Mr Patten, about 70 per cent of the group's Irish sales in 2001 were in pubs, compared with just 50 per cent today.

Across Europe, Guinness volumes were 7 per cent lower, which the company blamed on the continued shift to off-trade.

Overall Diageo recorded a 3.6 per cent decline in European sales, to £1.36 million (€2 million). Operating profit was down 2 per cent, at £484 million.

Globally, the group known for its Smirnoff vodka, Johnnie Walker whisky and Gordon's Gin, reported an 8 per cent increase in first-half profit as a strong performance in North and Latin America as well as Asia offset the difficulties in Europe.

Group net sales increased 6 per cent, to £4 billion, while volumes were 4 per cent ahead.

Diageo also raised its full-year guidance, signalling growth of 8 per cent in organic operating profit, compared with a previous forecast of 7 per cent.

The company reaffirmed its plans to buy back £1.4 billion of shares and revealed its intention to buy back a further £1 billion worth of shares next year.

Earlier this month Diageo announced it would be raising its prices on beer and some spirits by 2.7 per cent. The company said the increases, which in Ireland equate to an extra 4 cents on a pint of draught beer, were necessary to offset the rising cost of raw materials and energy prices.

The price rises, which will affect both the on- and off-trade, will take effect from March 5th.