Diageo hit as sales slow down in Europe

SHARES in drinks giant Diageo dropped yesterday after the company said that European sales were weakening and that it was pinning its growth hopes on middle class drinkers in emerging markets.

The company said like-for-like sales in the six months to 31 December rose four per cent to £5.3bn.

Operating profit increased two per cent to £1.7bn, but fell short of the five per cent forecast by analysts.

Diageo, which has brands including Guinness and Johnnie Walker, said European sales had been dragged down by the economic crisis in Spain and Greece where consumers’ spending power has been hit. Net sales fell by 38 per cent in Greece, where excise tax rises also took their toll.

However, the company said emerging markets were driving growth with beer in Africa and scotch in Asia proving popular – particularly with middle class customers. Despite shares dropping by around four per cent after the half yearly results, chief executive Paul Walsh said the company was performing well and was hiking the interim dividend.

“Emerging market sales in scotch have been very strong.

“Middle class customers in these are on the rise. Our super-premium ranges are very popular.

“There have been problems in Europe and consumers have been hit in Spain, but particularly Greece.”

But Russia and East Europe saw net sales up 20 per cent, driven by spirits.

In the UK net sales grew by one per cent, with sales of wine like Blossom Hill up at the expense of beer.

North American sales were solid, with Canada the star performer. Net sales rose seven per cent to £1.8bn across the region.

Johnnie Walker contributed more than a third of all Diageo’s sales growth over the period.

Total group marketing spending in the half increasing 12 per cent to £813m.

Meanwhile Walsh said that Diageo would continue to be based in the UK for the time being as the coalition’s corporate and personal tax plans would not be detrimental to the business.

“We do not feel compelled to be talking about leaving,” he said.