Drinks groups suffer a Chinese burn as spirit sales tumble

Diageo, maker of Johnnie Walker Scotch and Smirnoff vodka, posted a 1.3 per cent drop in third-quarter organic net sales, versus market expectations for a 2 per cent increase, according to analysts. Sales slid 19 per cent in Asia and saw weakness in other emerging markets including Russia, South Africa and Kenya.

Volatility in emerging markets more broadly hurt sales, and the weakening of Venezuela’s currency on the back of a new foreign exchange system also reduced growth by about 1 percentage point in the first half for Diageo.

“Current trends will however 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,” Diageo chief executive Ivan Menezes said.

Remy and Diageo shares were both down 4 per cent yester- day.

“It’s clearly a bad quarter and what’s worse is it’s clear that some of those trends moved into the fourth quarter,” said Oriel Securities analyst Chris Wickham about Diageo’s results.

Moreover, he noted, Diageo still gets two-thirds of its profits from more stable markets like North America and Europe.

Remy, however, generates about 40 per cent of its profit from selling cognac in China.