Diageo Sees Little Or No Sales Growth In Europe Next Year

24th Jun 2010 14:48

LONDON (Dow Jones)--Sales at Diageo PLC's (DGE.LN) European business will be only modestly higher in the second half of its current financial year, with little or no growth in the following year, the division's president said Thursday in a gloomy assessment's of the drinks giant's prospects. "The total of the second half will show some modest growth in our sales line," said the company's president for Europe, Andrew Morgan, on a call with analysts. Profit will be held back, however, by increased spending on advertising and promotion spend in the second half of the year. A&P spend declined by 5% in the first half. Morgan said the division would try to hold gross margin level next year but there would be some decline in the current year. After a tough first half, when sales dropped 5%, sales had improved in the third quarter he said. "We don't see a lot of growth in the base business in the coming year," he said, "there's no economic recovery in Europe that we can see." Diageo is the world's largest alcoholic drinks maker, with brands such as Johnnie Walker, Smirnoff and Guinness. Europe represents almost a third of Diageo's total sales. Morgan said sales would be around flat next year and he'd be disappointed if there was a significant sales decline. "We're concerned about Southern Europe in the coming year." The division's performance will be hit by a "double-digit volume decline" in Greece next year, he said. Greece, which accounts for about 6% of Europe's sales, will be further hit by destocking of Diageo's goods by its customers. The company has already reigned back its investment in the Greek market to reflect the reduced demand, said Morgan. Sales for the category as a whole in Greece could be down in the mid-teen percentages next year, he said. "That would not have a huge impact on the total but if that starts to spread to Spain, Italy and Portugal then we're in a different position altogether." Morgan said that while the economic outlook wasn't great for the next few years in Europe, Diageo wouldn't simply "lie down and accept that." Diageo's work on managing the drinks category in partnership with customers such as Tesco PLC (TSCO.LN) and Carrefour SA (CA.FR) would help mitigate the decline. Morgan said there was little opportunity to take more costs out of the business. "We're making sure we stay well resourced in places like Russia," he said. "If we had a very extreme outcome in Southern Europe we'd have to think differently," he said. -By Michael Carolan, Dow Jones Newswires; 44-20-7842-9278; [email protected] (END) Dow Jones Newswires June 24, 2010 09:48 ET (13:48 GMT)