Diageo has begun the year well, according the chief executive Paul Walsh, despite the after effects of the September 11th terrorist attacks and a global slowdown.

Walsh said that the company's priority brands continued to perform well with overall net sales growth similar to that during the same period last year.

However he did say that there was some slowdown in the level of volume growth outside the priority brands as well as an effect on areas in the North American operations.

In particular Diageo said it has seen September 11th hit on-trade business accounts, military bases and travel related venues, such as travel retail, hotels and holiday resorts.

Walsh said it was too early to tell what the long-term effect of the events of 11 September may be on either consumer behaviour or on the world economy. However he admitted that the company had already taken action to mitigate potential negative effects on the business, "mainly through a review of our cost base".

Walsh said: "We will ensure that we are building upon the improvements we have already made in marketing effectiveness. Our objective is to continue to invest to build our brands while capturing efficiencies arising out of the current media deflationary environment."

Continuing in his statement, Walsh went on to point out that outside North America the direct effect of September 11th has been muted. The UK continues to perform well, he said, benefiting particularly from the ready-to-drink category, while the key and venture markets have seen no significant change.

"We do, however, expect that our duty free business will be negatively affected by the reduction in travel, which has occurred around the world," Walsh said.