New rules to crack down on bribery and corruption in China have hit sales at drinks giant Diageo.
The makers of Johnnie Walker whisky and Guinness beer reported lower than expected first-quarter sales growth yesterday – which could result in a £160million hit to annual operating profits.
In a market update, the firm said that organic sales grew 3.1% in the three months to September 30, which was below consensus expectations for 4% growth.
It said government policies in China have led to a substantial fall in net sales in Diageo’s Chinese white spirit subsidiary.
Chinese President Xi Jinping’s launched an “anti-corruption and anti-extravagance” campaign earlier this year.
He said he wanted a “thorough clean-up” of “four forms of decadence – formalism, bureaucratism, hedonism and extravagance”.
In a country where corporate entertainment, gift-giving and ostentatious displays of wealth were the order of the day until recently, such a movement has taken its toll on luxury brands. In February, he announced a ban on radio and TV adverts for luxury gifts, claiming that it promotes incorrect values and encourages bribery and corruption.
Ivan Menezes, chief executive of Diageo, said: “Our performance in the quarter was good given weakness in some markets.
“The strength of our biggest business, US spirits, underpinned our performance. Our business in western Europe performed in line with the slightly improving trends we saw in Q4 of F13, although I still expect a low single-digit net sales decline for the full year.
“While there are headwinds in some emerging markets, including the impact of the government policies in China, there are also markets in which we continue to deliver robust growth and Diageo’s strength is the diversity of our geographic breadth and broad category reach. We continue to make this strong business stronger and we remain committed to delivery of our medium-term guidance.”
Meanwhile, SABMiller, the world’s second-biggest brewer, reported a resumption of quarterly volume growth as market conditions improved in Europe and North America and emerging-market businesses resisted a wider slowdown.
The shares rose the most in almost a year after the London-based company said organic lager volume rose 3% in the second quarter, reversing a 1% decline in the opening three months of the financial year.