Allied Domecq, the UK-based wines and spirits company, has reported a full year profit before tax of £495m (US$830m) a rise of 3%. However, despite being ahead of most analysts' expectations, the company saw its share price fall as investors worried about tough trading in Europe.

The company's sales increased 2.3% to £3.4 billion, while total spirits and wine volumes and net turnover increased by 8% and 7% respectively.

Philip Bowman, chief executive, said: "These results demonstrate the resilience of Allied Domecq's performance internationally. We have delivered increased profits, strong brand growth and excellent cash generation across the business after dealing with the pension and foreign exchange issues we reported in the first half and the economic uncertainty created by the Iraq war and the SARS virus. At constant currencies, earnings per share grew 9%. Excluding pension costs and foreign exchange, underlying profits grew by 20%.

"Our premium wine brands have performed strongly and are on track to deliver the targeted return on investment. Our strategy based around geographical and varietal diversity, brand laddering and economies in procurement has shielded us from the difficult year experienced by most other wine companies.

However, looking forward Bowman warned that there were "continued uncertainties in the world economy and the Eurozone remains difficult."

And by late morning, Allied's shares had fallen nearly 4% to 385-3/4 pence.

In particular, there were concerns about a slowdown in volume growth, which when acquisitions are excluded reached only 1%, compared to 4% at the half year stage.

But despite the difficult trading, Bowman said: "We are confident, however, that our business is well positioned to meet the challenges. Early indications are that the 2004 financial year has started well and we are on track to meet current expectations."