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RTD slide hits Diageo

DIAGEO has reported a drop in first-half profits

DIAGEO has reported a drop in first-half profits, blaming foreign exchange rates, European demographics and a dwindling RTD market.  Pre-tax profits fell by £69m from £1.26 billion to £1.19bn for the six months to December 31, 2004.

The weak dollar alone shaved around £171m off sales, according to chief executive Paul Walsh (right), helping to explain a sales dip from £5.06bn to £4.98bn for the world’s largest spirits group.

In Europe, weak demand for Smirnoff, in particular a decline in the brand’s ready-to-drink variant, helped to explain the slight decrease in sales from £2.25bn to £2.24bn.

Walsh commented, "Europe was challenging demographically, with a shrinking population in many countries, in contrast with the US, which with positive demographics, sees half a million new consumers entering the legal drinking age every year."

He also blamed the slowdown in Smirnoff Ice sales on a club scene "that has started to wane in the UK".  Guinness showed growth for the first time since 2001, with sales of the stout rising by 2%, while the brand’s decline in Ireland slowed, falling 1% in the six months to the end of December 2004, attributed to the smoking ban in Irish pubs.

Sales declines in Europe have, to some extent, been offset by cost reductions.  Diageo has established a shared service centre in Budapest and is subcontracting a number of processes from the US into this one site.

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