* H1 sales up 1.8 pct after rising 2.2 pct in 1st qtr
* Total sales in China down 22 percent
* Expects sales to strengthen in 2nd half - CFO
* See savings of 200 mln pounds/yr by fiscal 2017
* Stock down 7 pct; Pernod, Remy shares down 3 pct (Rewrites first paragraph, adds details on markets, comment on outlook, changes headline)
By Martinne Geller
LONDON, Jan 30 Diageo Plc, the world's biggest spirits company, reported a worse than expected slowdown in sales growth in the last six months, flagging a sharp drop in demand in China and some other emerging markets and pummelling its shares.
The British maker of Johnnie Walker whisky, Smirnoff vodka and Guinness beer is the latest spirits maker to be hit by factors including a Chinese anti-corruption clampdown on expensive gift-giving and said its hopes for an end to the downturn had been frustrated.
"The impact of what's happening in emerging markets has been evolving over the calendar year and while we were hopeful that we'd get some improvement, in fact the weakness has continued through the end of our calendar year and through the holiday period," Chief Financial Officer Dierdre Mahlan said on Thursday.
Mahlan said she expected sales to improve in the rest of the current fiscal year, but did not give a forecast.
Diageo, which generates about 42 percent of its sales from emerging markets, said total sales rose 1.8 percent in the first half of its fiscal year ending in June, following a rise of 2.2 percent in the first quarter.
Estimating that growth in the second quarter slowed to 1.6 percent, analysts said the results were weaker than expected.
"This surprising miss may read rather negatively for the whole industry, given how scale and U.S. exposure is supposed to act as a buffer for Diageo compared to more vulnerable peers," said HSBC analysts in a research note, adding the outcome was almost 200 basis points below their forecasts.
Diageo shares were down 7 percent at 1,778 pence by 1045 GMT, having fallen as low as 1,691p, their lowest since September 2012. Shares in French rivals Pernod Ricard and Remy Cointreau, already hit by similar emerging market concerns, were each down about 3 percent.
Diageo's statement was marked by a 22 percent drop in total sales in China, a trend which echoed a recent update from Remy Cointreau, which derives roughly 40 percent of operating profit from selling cognac in China and which said earlier this month cognac sales fell 32 percent in its third quarter.
Diageo also said price discounting in China by rival makers of baiju white spirit drove a 66 percent drop in sales by Shuijingfang, the baiju maker in which Diageo has a controlling stake.
A Chinese government crackdown on gift-giving and personal spending by civil servants has hammered sales of spirits like cognac and its high-end baiju spirit, eroding sales there for Diageo and its rivals.
Diageo's first-half earnings before items rose 4 percent to 62.6 pence per share. The company also announced a cost-savings programme aimed at saving 200 million pounds a year by the end of June, 2017. Mahlan said it was too early to quantify any job cuts that may result.
In the six months ended Dec. 31, net sales rose about 5 percent in North America, fuelled by a 26 percent rise in higher-priced "reserve" brands such as Ketel One and Ciroc vodkas. In western Europe, sales fell about 1 percent, Diageo said, citing weak economies in southern Europe and Ireland.
In emerging markets as a whole, sales rose a mere 1.3 percent, due to a slowdown that Mahlan said was "widespread but not uniform." She noted sales rose 35 percent in India, helped by increased distribution, and 20 percent in South Africa.
In Kenya, the company's Senator beer suffered from the reduction of an excise duty rebate that led to a 67 percent price increase. Sales fell 10 percent in Nigeria, as consumers opted for cheaper beers in the face of high inflation that is constraining disposable incomes.
"Nigeria continues to be a difficult market from a macro point of view. We had expected there to be some improvement this year, which did not materialise," Mahlan said.
In southeast Asia, Diageo said net sales fell 11 percent, hurt by political unrest and tax hikes that resulted in double-digit price increases. (Editing by David Holmes)