Diageo Blames China for Disappointing Growth

Drinks giant Diageo posted a disappointing increase in net sales of just 0.4% for its financial year, blaming the slowdown in growth on operations in China and certain other emerging markets.

Pre-tax profits dropped to £2.7bn in the year from £3bn previously. Net sales fell 9% to £10.3bn, while the average forecast was £10.5bn, according to Thomson Reuters data.

Net sales in the Asia Pacific region, which accounts for 13% Diagio's sales, fell by £106m.

Diageo was forced to make a £264m write down the value of Chinese distiller Shuijingfang, which it owns 40% of, following a steep decline in sales of Chinese baiju spirit due to government-enforced austerity measures.

Diagio, which makes Guinness, Johnnie Walker whisky and Smirnoff vodka, said it has also had to deal with currency devaluations and a tax increase on one of its beers in Kenya.

Diageo reported earnings of 95.5 pence per share before exceptional items for the full year ended 30 June, down from 103.1p a year before and below analysts' forecasts which were around 97.7p.

Net sales fell 9% to £10.3bn, while the average forecast was £10.5bn, according to Thomson Reuters data.

"This year our business has faced macroeconomic and market specific challenges that have impacted our top line performance," said CEO Ivan Menezes.

"Our regional performance has been mixed. In North America we have again delivered top line growth and significant margin expansion and our Western European business is now stable.

"Emerging market weakness, often currency related, but also including some specific issues, such as the anti-extravagance measures in China, has led to weaker top line growth."

Despite the disappointing results, Diageo's share value jumped by over 10% in early morning trading to reach 1,799.5p.