Guinness owner Diageo has revealed that volume sales in Ireland of its iconic stout fell by 8 per cent the year to June, the sixth straight year of slippage in the home market in which its dominance had never questioned for generations.

As imbibers turn away from pubs in favour of drinking at home, the brewer said net sales of the stout after deducting excise duties fell 3 per cent due to price increases in June last year and May 2006.

Guinness was also affected by increased levels of competitor investment and the movement to the off-trade, where Guinness' share is lower, Diageo said in its year-end results.

With net sales of Baileys Irish Cream declining by 8 per cent due to increased competition from "lower-value brands", the bright spot was Smirnoff vodka. Diageo said the brand "outperformed the vodka category in both the on and off trade".

The picture was not altered by a rise in net sales of the lager brands Carlsberg, up 7 per cent, and Harp, up 2 per cent. Diageo said both brands maintained volume year-on-year.

The poor performance of Guinness was expected by the market as Diageo had indicated in its first-half results that volume sales in Ireland dropped 9 per cent. Having failed to put a floor under the decline in the second half, Diageo group chief executive Paul Walsh indicated yesterday that a turnaround was not imminent.

In spite of the introduction of new stout product lines such as the Brewhouse series and Guinness Mid-Strength, Mr Walsh said he expected recovery to be slow.

"You will see Ireland being somewhat of a drag for the foreseeable future," he said. With a 40 per cent share of the on-trade, Diageo maintains that Irish drinkers still down about one million pints every day. But in a declining alcohol market, the stout has not increased volume sales here since the year to June 1999, when they rose by a mere 1 per cent.

Guinness Ireland spokesman Michael Patten linked the decline to two fundamental shifts in the drinks market: the increase in wine and cider sales had eroded the beer market; and the rapid move away from drinking in pubs disproportionately damaged Guinness because home drinkers favoured lager products.

While beer had 70 per cent of the alcohol market in 1990, this had fallen in 2005 to 52.6 per cent. Meanwhile, the off-trade grew to 49 per cent of the total market in 2005 from 30 per cent in 1997.

As Diageo reported an 11 per cent rise in annual pretax profits to £2.1 billion (€3.12 billion), the group said global geopolitical uncertainty had made it cautious in its profit forecasts.

Mr Walsh said the group had suffered a fall in liquor sales in Lebanon following the Lebanese war. Sales of duty-free products dropped after the British and US governments imposed restrictions on carrying liquids on transatlantic flights following an alleged terrorist plot.

Mr Walsh said the sales declines were the reason that Diageo was maintaining its operating profit growth forecast at seven per cent for fiscal 2007, preferring not to raise expectations in case of further geo-political events.

"This is a very uncertain world," Mr Walsh said. "You can't keep absorbing these hits."

Duty free accounts for about 3 per cent of Diageo's group sales. Its annual sales in Lebanon are about £10 million.

The profits were in line with expectations, but analysts were disappointed that the group did not raise its forecasts for 2007.

Diageo's shares closed down 24p, or 2.5 per cent, at 935p.

Diageo reported healthy sales in North America, where consumers have been drinking more spirits and less beer, and in international markets.

Europe was weaker, with sales volumes up only 1 per cent, because of a 20 per cent decline in volumes of "ready-to-drink" beverages and the decline of Guinness volumes in Ireland.

In Europe, Diageo plans to focus on premium brands to appeal to consumers with more disposable income.