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Sancho Panza

Diageo To Cut Costs After Emerging Markets Hit Sales

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Telegraph 30/1/14

'A crackdown by the Chinese government on bureaucrats lavishing money on extravagant gifts and banquets has caused a slight hangover at the world’s biggest drinks company, Diageo. The maker of Johnnie Walker and Guinness reported a 5pc dip in volumes during the first half of its financial year, as it came up against hurdles in key emerging markets, in particular China and Nigeria.

Beijing’s anti-extravagance measures triggered a 66pc decline in net sales at ShuiJingFang, the Chinese white spirits company in which Diageo holds a 39.71pc stake after paying out £265m. Although the Chinese company is not greatly dependent on government gifts and banquets, it was hit by rival white spirits makers slashing prices to boost demand.

Beer sales also took a dive in Nigeria, as drinkers, under pressure from high inflation, opted for cheaper lagers over Guinness and Diageo’s Harp brand.

Net sales across the group fell 1pc on a reported basis, despite a strong performance in the company’s biggest market, America. On an organic basis, sales grew 2pc but analysts were disappointed at 2.9pc growth in operating profit and a small 0.4 percentage point improvement in operating margin.

Mr Menezes announced plans to cut £200m of costs a year until June 30 2017 in areas such as IT, the supply chain and logistics. He wants to turn Diageo into a more “agile” company, better able to respond to local conditions in its 21 markets.

Details of the cost-savings, the first significant programme since 2011, will be set out over the next few months and the drinks chief declined to comment on potential job losses.

Diageo expects its Chinese baiju business to stabilise by the end of this year and to return to growth in 2015.

“I am very happy we have this asset [shui Jing Fang], even though it has gone through this bit of disruption right now.

“If you look at the baiju category, it is huge and very profitable and has been around forever.”'

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Gov gifts and banquets. It's allright for some. I suppose that isn't reported the local media.

The rivals must do alot of gifts if the price changes cause a sentance in a ftse trading update.

Edited by Ash4781

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