Drinks group Diageo today said market conditions in Europe were difficult in the first quarter but that trading remains in line with expectations.
Diageo - whose brands include Guinness, Smirnoff and Johnnie Walker - said European volumes are down against the prior period and the decline in the ready-to-drink segment is continuing to adversely impact net sales growth.
Chief executive Paul Walsh also told the group's annual meeting that the current high price of oil has led to higher costs for all consumer goods companies and that Diageo is "not immune to this".
However, it said its cost structure is reducing its exposure and it expects to contain the cost pressures within its overall guidance, which remains unchanged for the current year.
The group said in September that it expected top and bottom line organic growth in the 2005/6 financial year similar to that in 2004/5. It said trading in the first quarter of the new financial year supported that guidance.
Diageo said its North American business continues to gain share in the growing spirits category while in its international region, volume growth remains strong.
Markets identified by the company as underperformers last year - Korea, Taiwan and Nigeria- are now making progress in line with its expectations.
Mr Walsh said the company estimates the negative impact in the 2006 financial year of the year-on-year movement in exchange rates will be £45 million, should the recent strengthening of the US dollar be maintained.
He said that would be a slight improvement from the £50 million adverse movement estimated in September. However, if current rates are maintained, Diageo would expect a more substantial improvement in the 2007 financial year.