Diageo yesterday hinted that the slump in demand for ready-to-drink brands was bottoming out as it posted a two per cent rise in annual operating profits.
It scaled back spending on promoting the likes off Smirnoff Ice after their worldwide sales fell by five per cent over the past year, but told investors that trends suggested the market was stabilising.
Drinkers in Europe led the way in turning their backs on such items, with volumes of Smirnoff ready-to-drink products down by more than 25 per cent on the continent and by 19 per cent in the UK.
Diageo, whose other brands include Guinness and Pimms, said yesterday the decline of the ready-to-drink market cut its overall sales growth by one per cent over the whole of the past year.
Operating profits before exceptional items of £1.94 billion in the 12 months to the end of June were two per cent higher than the £1.91 billion haul of last year or seven per cent ahead after stripping out the impact of currency swings.
Pretax profits came in at £2 billion before exceptional items, down from £2.07 billion a year earlier.
Diageo said its eight priority brands that include Johnnie Walker whisky, Guinness, Baileys, Jose Cuervo tequila and Captain Morgan rum were its engine for growth.
Chief executive Paul Walsh said the pick-up in volumes during the current financial year should mirror the three per cent growth of the past 12 months, with net sales forecast to rise by four per cent.
But he added: "Better pricing and a stabilising ready-todrink trend may give us the opportunity to improve on the net sales growth we achieved this year. We believe operating profit growth can be similar to that achieved in 2005 even after allowing for higher growth in marketing spend and higher pension costs."
The group raised the final dividend to 18.2p from 17p for a seven per cent increase in the full year payout to 29.55p.
Mr Walsh said the group plans to up its share buyback programme.
He said that given the continued strong performance of free cash flow, the group will now be able to increase the amount of its share buy back and for fiscal 2006 is proposing a programme of around £1.4 billion.
The importance of the ready-to-drink market is underlined by the fact that it still accounts for around ten per cent of global sales and six per cent of volumes despite recent declines.
Alcopops caused a buzz when they were first launched in the early 1990s and became particularly popular with women, but have struggled to retain the loyalty of drinkers in the face of the growing appeal of wine and spirits.
Diageo said it grew sales by two per cent and volumes by one per cent in the UK.