The world's biggest alcoholic drinks group Diageo has reported a slight fall in annual profits, but said it is set for a pickup in growth this year led by price rises and cost cutting.
The firm, which makes Guinness, Smirnoff vodka and Johnnie Walker scotch, posted pre-tax profits for the year to June 30, 2005 of £2.003 billion sterling before exceptionals. The company reported underlying earnings of 49.1 pence a share.
Diageo said its Irish results reflect the ongoing difficulties in the on-trade as well as growth in the wine and spirits segments. The company said that the shift from the on-trade to the off-trade was further exacerbated by the smoking ban introduced in March 2004. Irish operations contribute about 7% of the group's total profits and about 20% of their European.
Diageo said its Irish on-trade business declined by 5% and now represents 53% of the market, while the off-trade grew by 11%. This was driven by strong growth in wines and spirits. The majority of the company's business in Ireland is in the on-trade and as a result, volume declined 4% and nets sales were down 5%.
Although volumes of Guinness were down 3%, net sales were up 4% due to pricing. In the on-trade, which accounts for 90% of Guinness volume, share was up by nearly a percentage point in the Republic of Ireland and remained flat in the North.
Smirnoff vodka performed well and continues to be the number one vodka brand in Ireland. Volume increased by 11% as a result of the successful introduction of a new bottle and new advertising campaigns. Baileys volume was also up 2%, with most of the sales growth coming during the Christmas period as a result of a new marketing campaign.
Diageo said its annual underlying operating profits worldwide rose by 7%, just ahead of its 6% target. The group added that it expected volume growth of 3% and sales growth of 4% in 2005/2006, similar to that seen in the year just reported.
In July, the group had warned of slower sales growth in the first six months of 2005 due to worsening trading in Europe and declining sales of so-called ready-to-drink products such as Smirnoff Ice in the US.
