Drinks giant Diageo takes China writedown in its stride

The group which owns Guinness to Johnnie Walker drinks, advertised by Jude Law, reported a 10% tumble in full-year operating profit to £3.13 billion

Laura Chesters

31 July 2014

Drinks giant Diageo has no regrets about its spending spree on emerging market brands, even though it posted a slump in profits today.

The Guinness to Johnnie Walker drinks group reported a 10% tumble in full-year operating profit to £3.13 billion and a 9% fall in net sales, with organic sales up just 0.4% - caused by currency d evaluations against the strong pound and a writedown of its Chinese spirits business by £264 million.

The company had previously bought up a raft of local drinks brands in countries such as Turkey, China, Brazil and Ethiopia and today revealed that its Chinese baijiu spirit business, Shui Jing Fang, suffered a 78% sales decline during the year.

Like sales of watches and cognac in China, baijiu drinks — which are often drunk at banquets — have been hit by the government crackdown on gift giving and ostentatious spending.

Diageo’s chief financial officer, Deirdre Mahlan, said: “There are no regrets. We are still really confident about emerging markets.

"Nearly all the businesses we bought are delivering against their business case. If you look at demographics and macro-economic indicators, there will still be future growth.”

Diageo’s high-end spirits business performed well globally: reserve brand sales rose 14%, with double-digit growth in every region and sales up 29% in Britain.