The world's biggest spirits group Diageo, said today that annual underlying operating profits will grow at around 6% in line with its guidance, but warned that the trading environment in Europe had worsened.
The British firm, said volume growth and mix improvements had slowed due to tough trading in Europe and a slowdown in the ready-to-drink market in the US.
Diageo drinks products include Guinness, Baileys, Smirnoff, Johnnie Walker and J&B. The company employs 1,700 in Ireland, and another 500 people in Northern Ireland.
Diageo said sales in Europe, which dipped 1% in its July-December 2004 first-half, were set to be down further in its second-half.
But the problems in Europe and with Smirnoff Ice in the US were offset by growth elsewhere in North America and other regions such as Latin America, and the firm stuck to its annual 6% profit growth goal after a first-half 8%.
Diageo said exchange rates will hit pre-tax pre-exceptional profits by £80m pounds in 2004/2005, in line with its previous estimates, but for the following year the hit is estimated at £50m pounds rather than £80m pounds previously estimated.
Diageo said it will make an exceptional charge of £150m to account for annual payments to the Thalidomide Trust. Guinness, which merged with GrandMet to form Diageo in 1997, took over Distillers in 1986 which had developed Thalidomide that became notorious for causing birth defects.
Diageo faces increased competition as French rival Pernod Ricard is set to close its takeover of Allied Domecq later this month.
In London this morning Brokerage Panmure Gordon cut its rating on Diageo to 'sell' from 'hold' , saying the update added to its concerns about its trading and that the share was 'fundamentally over valued'.
Panmure said in a research note that trading in Europe had worsened, Guinness was underperforming and there had been a slowdown in the United States.
The brokerage set a 750 pence price target on Diageo shares.
On the FTSE100 Diageo shares were trading down 6.8%, down 57 pence at 781.5 pence at 10.30am.
