Diageo and Remy hit by Chinese sobriety push

Sales tumbled 19 per cent in Asia. Picture: Getty
Sales tumbled 19 per cent in Asia. Picture: Getty
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Johnnie Walker-maker Diageo and French spirits group Remy Cointreau have reported steep sales declines in China, as the sector continues to suffer fallout from a crackdown on corporate entertainment in the world’s second biggest economy.

Diageo – Scotland’s biggest whisky producer and owner of Smirnoff vodka and Guinness stout – posted a 1.3 per cent drop in its third-quarter net sales today.

Sales tumbled 19 per cent in Asia and there was weakness in other emerging markets including Kenya, Russia and South Africa. The weakening of Venezuela’s currency also hit results.

The group said it expects adverse currency movements to shave £330 million from operating profit in the year to 30 June, versus an earlier estimate of £280m. Its operating profit for the first half was £2 billion.

Chief executive Ivan Menezes said: “Current trends will impact top line growth this financial year, but strong management of our cost base means that we remain committed to the delivery of our margin expansion goals.”

The third quarter – covering the three months to 31 March – saw sales rise 1.2 per cent in North America and western Europe, and nearly 28 per cent in Latin America and the Caribbean, fuelled by strength in Brazil.

Remy, which generates about 40 per cent of its profit from selling cognac in China, said its operating earnings would fall by as much as 40 per cent in the year ended 31 March as the anti-corruption measures in China showed no sign of letting up.

Chief financial officer Luca Marotta said: “It’s now expanding from the big cities to the regions and there was a crackdown on trendy bars and ­discotheques during the Chinese New Year.”