Chinese abstinence hits drinks firms Diageo and Remy

China's crackdown on corruption, and with it luxury gift-giving, has again hit quarterly sales of spirits, European drinks groups Diageo and Remy Cointreau said today.

In contrast, brewer SABMiller said sales of lager in the last three months jumped 10 per cent by volume in China, one of the markets that helped the maker of Peroni and Grolsch beers post a 6 per cent rise in net sales by value, up from a 2 per cent rise the previous quarter.

"We see this as a solid result in tough market conditions," said Numis Securities analyst Wyn Ellis. Stifel Nicolaus analyst Mark Swartzberg also said SABMiller was "navigating better than Diageo".

Diageo, the world’s biggest spirits company as well as the maker of Guinness and Red Stripe beers, posted a 3.1 per cent rise in sales for its first quarter to September 30th, which analysts said fell short of their expectations for a 4 per cent rise. Sales rose 5 per cent in the previous quarter.

Meanwhile Remy, which generates 40 per cent of its operating profit from cognac sales in China, said wholesalers were reducing inventories after sales fell short of expectations during the Chinese New Year.

Remy said revenue declined 5.3 per cent on a like-for-like basis to €294.4 million in the three months to September 30th, its second quarter, compared with a 2.3 per cent decline in the previous quarter.

Despite the slowdown in the last three months, Diageo stood by its medium-term outlook calling for annual sales growth of 6 per cent.

But several analysts questioned whether the maker of Johnnie Walker whisky and Smirnoff vodka would be able to meet it.

While Diageo's sales in the last quarter rose 10.9 per cent in Latin America and the Caribbean and 5.1 per cent in North America, they grew only 1.3 per cent in Africa, eastern Europe and Turkey and 0.6 per cent in Asia Pacific.– (Reuters)