Diageo sales rose, but demand for Guinness is slipping

The firm, whose brands include Smirnoff vodka and Guinness, said half-year operating profits rose to �1.3bn ($2.5bn), up from �1.26bn a year ago.

UK-based Diageo said strong growth in North America, Latin America and Asia helped to lift sales across the group.

However, weaker demand for Smirnoff Ice and Guinness hit sales in Europe.

Strong spirits

Diageo said pre-tax profits slipped to �1.29bn in the six months to the end of December 2006, from $1.4bn a year ago - although the previous year's figure had been boosted by the firm's �151m sale of its shares in General Mills.

Diageo added that it expected the weaker US dollar to shave as much as �90m from the firm's full-year operating profits.

Despite the warning, Diageo chief executive Paul Walsh said the company, which also makes Baileys liquor, Johnnie Walker whisky and Captain Morgan rum, had made "a strong start to the year".

"In North America our continued outperformance in the US spirits market was the key driver of the 11% organic operating profit growth we delivered," Mr Walsh said.

"Our spirits brands, especially Scotch where net sales grew 11%, did particularly well, benefiting from increased investment in marketing."

Diageo added that it planned to invest �100m to boost whisky production in Scotland, creating 200 jobs.

The firm said it intended to expand a grain distillery in Fife, where its Johnnie Walker, J&B and Bell's whisky brands are made.