That’s the spirit as Diageo chief stands by China
DIAGEO boss Ivan Menezes said he did not regret its foray into China’s white spirits market after anti-extravagance measures forced the group to write-down the value of its stake in baiju-maker Shui Jing Fang.
“Did we make the right decision? Yes we did; it’s the right category to be in and it took seven years of effort to get into,” Menezes said, adding it could not have foreseen China’s decision to clamp down on gift-giving.
The drinks giant confirmed it has taken a net write-down of £79m on its near 40 per cent stake in the high end brand. Fierce discounting by rival baiju-makers responding to government measures caused sales to slump 78 per cent last year.
Menezes said its expected the decline in sales “to stabilise by the end of the year”, adding that baiju – a white distilled spirit – accounted for 60 per cent of the Chinese alcohol drinks business.
Overall, the Johnnie Walker owner posted a nine per cent fall in net sales to £10.3bn in the year to 30 June, mainly due to the impact of adverse foreign exchange movements, which are expected to knock off another £160m operating profits this year.
Operating profits fell to £3.13bn from £3.48bn the previous year, missing analyst estimates by around 4.3 per cent.
Menezes said despite a “mixed year”, its luxury reserve brands were continuing to drive growth, with sales up 14 per cent. Net sales in Western Europe were flat compared with a four per cent decline the previous year while Britain returned to growth.