Slide in Guinness sales dampens spirits at Diageo

A growing preference among Irish drinkers for designer lagers rather than Guinness, and a slaking of clubbers' thirsts for Smirnoff Ice, marred an otherwise solid set of interim results from Diageo, the global drinks group.

The company said operating profit in Ireland fell 17 per cent to £75m as Guinness's market share declined 1.5 per cent in the six months to 31 December. In Britain operating profit was up 6 per cent to £150m although ready-to-drink brands continued to fall, with Smirnoff Ice, which accounts for 70 per cent of ready-to-drink sales, seeing a 12 per cent decline in volumes.

Paul Walsh, the chief executive of Diageo, said: "The ready-to-drink segment is a mature segment. We can't expect to see such impressive growth as we have in the past and in future we expect to see growth rates for ready-to-drink closer to those of their parent brands."

The Smirnoff vodka brand as a whole saw a 2 per cent rise in volumes, although net sales, after deducting excise duties, fell 1 per cent.

However, a better performance in the US and Spain and strong sales of Johnnie Walker Scotch meant Diageo was able to report a 5 per cent increase in total premium drinks turnover to £5.06bn and a 6 per cent increase in operating profits to £1.18bn. The company presented results that stripped out numbers from Burger King, the fast food chain it sold more than a year ago which was still included in the comparative six months to 31 December, 2002.

Exchange rate movements, notably the weakening dollar, cut operating profits by £20m.

Diageo has now completed its transformation from a sprawling consumer goods group when Guinness and Grand Metropolitan merged in 1997 to a premium drinks group focused on eight global priority brands. Its star performers in the latter half of 2003 were Johnnie Walker, Baileys and Captain Morgan rum.

The group has also continued to build its wine business, although Mr Walsh reiterated his view that Diageo would not be drawn into expensive wine company acquisitions. Blossom Hill was now the number one wine in the off-trade market, it said.

Diageo recently drew criticism from its Scotch whisky rivals for transforming its Cardhu single malt brand into a so-called "pure malt" which included a mix of other whiskies. However, Mr Walsh said the company would carry on with similar innovations as a way of securing the commercial future of Scotch.