Sales of drinks such as Guiness and Baileys declined in Ireland in the six months to June, according to Diageo.
In a trading update today the international drinks firm said it not expect organic volume and net sales growth for the full year to improve on the 1% volume growth and the 4% net sales growth achieved in the first half of the year.
It said tough trading conditions in the second half of the year were compounded by the Iraqi conflict and SARS. But Diageo says they expect full year organic operating profit to be marginally better than the 6% achieved in the first half of the year.
In the Irish market, the update said the alcoholic drinks industry, which has been in decline, has deteriorated further as a result of the increased excise duty on spirits introduced in December 2002. It expects Irish sales volumes to fall by 5% over the full year to June 2003, saying the market, which was already deteriorating due to the economic slowdown, suffered a further blow when finance minister Charlie McCreevy increased the excise duty on spirits last December.
In this context, volume preformance of Diageo's brands deteriorated in the second half across all categories with volume expected to fall 5% in the full year.
Diageo, which was formed from the merger of drinks group Guinness and food and spirits firm Grand Metropolitan in 1997, said earnings have been boosted by stronger global sales of Smirnoff and Guinness and the inclusion of Captain Morgan rum, which it took over last year as part of its acquisition of the Seagram portfolio.
Diageo chief executive Paul Walsh said that consumer goods companies have faced 'an environment of declining consumer confidence and significant global events' this year.
'Despite these circumstances Diageo will deliver consistent performance in top and bottom line organic growth, continued growth in priority brands and improved share,' he added.
Diageo, which has sold food groups Pillsbury and Burger King to focus on spirits, said it expected to take a charge of £95m to operating profits in the year to end-June 2004, due to its £1.4 billion pound pension deficit. This was in line with analyst expectations.
