Diageo, the spirits and beer group that includes Guinness, has reported a worsening trading environment over the past couple of months.
In the Republic, the group said that its share of the draught beer and cider markets have begun to grow after a period of decline, but that beer sales remain weak.
Addressing shareholders at its annual general meeting in London yesterday, Diageo chief executive Mr Paul Walsh said that trading conditions had become more difficult since the group's annual results in early September. He added that the group was facing a tough challenge if it is to meet its financial targets for this year.
"Today, given world events and the more difficult world economic environment, current year targets do look increasingly challenging."
The warning about tougher trading conditions depressed Diageo shares. By the close of business yesterday, the shares had fallen by 8 per cent to £6.77, down 57p.
The beer market in the Republic had been down by around 2 per cent at the end of June, with industry sources suggesting this trend will continue for the rest of 2002. Sales of Guinness were down around 3 per cent at that stage, which is also expected to continue.
Spirits are performing strongly ahead of beer. In its trading statement, Diageo said the successful introduction of Smirnoff Ice on draught had resulted in volume growth and good share gains for the group in the ready-to-drink category.
Diageo, which markets Johnnie Walker scotch, Jose Cuervo tequila and Baileys liqueur, reported sales growth of 9 per cent, excluding acquisitions, and a 13 per cent rise in operating profits.
These figures were broadly in line with the group's targets of 8 to 10 per cent annual organic sales growth and double-digit percentage profit growth. At that stage, Mr Walsh said the group would meet these targets again, although he is now indicating that this will be challenging.
The group added that it would withdraw its ready-to-drink product Captain Morgan Gold from distributors in the US after a disappointing performance and would take an £18 million (€28.5 million) charge in the current year.
Diageo also warned that the operating environment for the fast-food restaurant industry had worsened over the past three months.
The group is continuing to work towards the sale of its Burger King business to a group led by private-equity firm Texas Pacific.
Diageo agreed the sale of Burger King in August for $2.26 billion (€2.29 billion), to be completed later this year, with a chunk of the proceeds to be returned to shareholders.
(Additional reporting by Reuters)
