Diageo has reported an 8.7 per cent rise in operating profits to €2.15 billion for the year to the end of June, but sales of its Guinness brand in Ireland and Europe continue to decline. Ciarán Brennanreports.
Net sales of Guinness in Ireland fell by 7 per cent, while Guinness volume declined 9 per cent. Despite overall growth of 3 per cent in net sales globally, Guinness sales in Europe fell by 4 per cent, driven largely by declines in Ireland and Britain.
In Britain, Guinness volume declined by 5 per cent, although a price increase in February moderated the net sales decline to 3 per cent. "In Europe, Guinness performance largely reflected the difficult market conditions in Britain and Ireland," said Michael Loakimides, managing director, Diageo Ireland.
"For instance, Guinness grew market share in the British on-trade market, but net sales declined due to the shift from the on to the off-trade. Similarly, in Ireland, the on to off-trade market shift was the primary driver of Guinness performance."
Sales of Guinness in Ireland have declined by 15-20 per cent over the past three years which, the company said, mirrors the decline in the on-trade business.
Around 90 per cent of Guinness sales come from the on-trade. Diageo said it expects the off-trade sector to be larger than the on-trade sector in the Republic for the first time in this financial year.
"It is not the brand, but the channel in which it is sold," said Mr Loakimides.
However, he said the second-half performance of Guinness in Ireland improved, with the decline in net sales slowing to 5 per cent.
"The improved performance in the second half of the year was driven by increased investment in marketing activity, new advertising and greater focus in the off-trade channel, where we achieved year-on-year volume growth," said Mr Loakimides. "This improved performance has continued into the new financial year."
Diageo said sales of Guinness performed well globally, with a 7 per cent rise in North America and a 15 per cent rise in Africa, Latin America and the Caribbean.
Overall, Diageo sales in Ireland fell by 1 per cent for the year, while volume was down 2 per cent. Net sales of beer declined by 2 per cent, but sales of spirits and wine both rose by 7 per cent.
Diageo Ireland's business is worth nearly €2 billion, with sales in the Irish market understood to be around €860 million. Exports from Ireland are more than €1 billion, with much of this driven by Baileys. Describing Baileys as the "story of the year", Mr Loakimides said sales of the liqueur, which is made in Ireland, grew 10 per cent globally on the launch of Baileys Flavours.
Globally, Diageo posted net sales of €7.48 billion, up 3 per cent on the figure for 2006. The company benefited from strong growth in the US, which accounts for 40 per cent of its profits, and from emerging markets such as Russia, China and Latin America.
"We expect increased organic operating profit growth in 2008 of 9 per cent," said Paul Walsh, chief executive, Diageo.
