Smoking bans and Europe's poorly performing economies have sparked a fall in the consumption of leading Diageo brands like Guinness and Smirnoff Ice, the multinational warned yesterday.
Diageo, which is poised to take over Bushmills Irish Whiskey, predicted that the fall in its European sales for the first half of 2005 would be steeper than the 1 per cent recorded in the second six months of last year.
The multinational yesterday issued a trading statement to mark the end of its full financial year on June 30th. It will publish results for the 12 months to that date in September.
The group said that sales of its beers, made up mainly of leading Irish brands Guinness, Harp, Kilkenny and Smithwicks, slowed down in a "difficult trading environment".
Diageo blamed weakness in the main continental European economies and pub smoking bans like those imposed in the Republic and Italy for this trend.
Europe accounts for one third of its turnover, which amounted to €13 billion last year. Business in the region is beginning to benefit from cost cutting and operational efficiencies.
The group is shifting all Guinness brewing for Britain to the St James Gate brewery in Dublin. This will result in a 50 per cent increase in production at its main Irish brewery.
Cost-cutting initiatives are expected to have saved it €32 million in production costs in the year to the end of June, and will save it €73 million by the end of its current financial year.
Diageo spirit brands are expected to post 4 per cent volume growth for the year to end of of June. In the US, sales of its brands have been ahead of the market average.
But the group said that overall performance in this division was hit by a decline in the US of its Smirnoff Ice alcopops range (known as "ready-to-drink" or RTDs).
Diageo said yesterday that it expected operating profit to be 6 per cent ahead of the €2.8 billion it achieved in the year to June 31st 2004.
Early last month Diageo announced that it planned to buy Co Antrim-based Bushmills Irish Whiskey for €300 million.
Diageo shares dropped by 5 per cent to £7.91 (€13.7) in London yesterday, making it one of the biggest losers on the day.
