Sunday 18 February 2018

Diageo sales hit by China's crackdown on corruption

Diago has seen sales hit in China
Diago has seen sales hit in China

Martinne Geller and Ailish O'Hora

Diageo, the world's biggest spirits company, reported a sharp slowdown in sales growth after China cracked down on corruption.

The maker of Guinness, Johnnie Walker whisky (pictured) and Smirnoff vodka has become the latest spirits maker to be hit by factors including a Chinese anti-corruption clampdown on expensive gift-giving and said its hopes for an end to the downturn had been frustrated. Sales in Ireland also fell.

"The impact of what's happening in emerging markets has been evolving over the calendar year and while we were hopeful that we'd get some improvement, in fact the weakness has continued through the end of our calendar year and through the holiday period," chief financial officer Dierdre Mahlan said yesterday.

Ms Mahlan said she expected sales to improve in the rest of the current fiscal year, but did not give a forecast.

Diageo, which generates about 42pc of its sales from emerging markets, said total sales rose 1.8pc in the first half of its fiscal year ending in June, following a rise of 2.2pc in the first quarter.

Estimating that growth in the second quarter slowed to 1.6pc, analysts said the results were weaker than expected.

"This surprising miss may read rather negatively for the whole industry, given how scale and US exposure is supposed to act as a buffer for Diageo compared to more vulnerable peers," said HSBC analysts.

Diageo suffered a 22pc drop in total sales in China, a trend that echoed a recent update from Remy Cointreau, which derives roughly 40pc of operating profit from selling cognac in China and which said earlier this month cognac sales fell 32pc in its third quarter.

In Ireland, Diageo said the overall Irish beer market continued to decline in the six months ended December with sales down 6pc.

However, Diageo said that the company still commands just over 32pc of the market.

Irish spirits and liqueur brands performed well in the half due to the continued momentum of Baileys in Greater China (net sales up 37pc) and Bushmills in Russia and Eastern Europe (net sales up 22pc).

Irish Independent

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