* Diageo 3rd-qtr sales fall 1.3 pct, Asia down 19 pct
* Remy sees full-year profit down as much as 40 pct
* Remy says China crackdown shows no sign of abating
* Diageo, Remy shares down 4 percent
(Adds details on Remy, comments, bullet points, byline)
By Martinne Geller and Dominique Vidalon
LONDON/PARIS, April 17 Britain's Diageo
and France's Remy Cointreau reported steep sales
declines in China on Thursday, failing to revive a taste for
their luxury spirits more than a year after an anti-corruption
campaign first hit conspicuous consumption.
Diageo, maker of Johnnie Walker Scotch and Smirnoff vodka,
posted a 1.3 percent drop in third-quarter organic net sales,
versus market expectations for a 2 percent increase, according
to analysts. Sales slid 19 percent in Asia and saw weakness in
other emerging markets including Russia, South Africa and Kenya.
Volatility in emerging markets more broadly hurt sales, and
the weakening of Venezuela's currency on the back of a new
foreign exchange system also reduced growth by about 1
percentage point in the first half for Diageo.
"Current trends will however impact top line growth this
financial year, but strong management of our cost base means
that we remain committed to the delivery of our margin expansion
goals," Diageo Chief Executive Ivan Menezes said.
Remy and Diageo shares were both down 4 percent on Thursday.
"It's clearly a bad quarter and what's worse is it's clear
that some of those trends moved into the fourth quarter," said
Oriel Securities analyst Chris Wickham about Diageo's results,
though he cautioned that the third quarter accounts for only 18
percent of annual sales.
Moreover, he noted, Diageo still gets two-thirds of its
profits from more stable markets like North America and Europe.
Remy, however, generates about 40 percent of its profit from
selling cognac in China. The French company said its operating
earnings would fall by as much as 40 percent in the year ended
March 31 as the anti-corruption measures in China showed no sign
of letting up.
"It's now expanding from the big cities to the regions and
there was a crackdown on trendy bars and discotheques during the
Chinese New Year," said Remy's Chief Financial Officer Luca
Remy, which also makes Mount Gay Rum and Cointreau liqueur,
said like-for-like sales fell 16.1 percent in the fourth
quarter, while cognac sales alone slumped 32.3 percent.
Marotta said Remy assumed that sales from wholesalers to
retailers, restaurants and bars would stabilize in China in the
fiscal year that began on April 1st. If that happened, he said,
Remy's cognac division could return to growth at a mid-single to
low double-digit rate.
BUILDING FOR THE LONG-TERM
Despite the short-term woes, Diageo and Remy said they
continued to invest in building their brands and distribution
networks, as emerging markets remain long-term growth
For the fiscal year ending 30 June, Diageo said it now
expects adverse currency moves to shave 330 million pounds ($554
million) from its operating profit, versus an earlier estimate
of 280 million pounds, due largely to the devaluation of the
Venezuelan currency. Its operating profit for the first half of
the year was 2 billion pounds.
In the three months ended 31 March, it saw sales rise 1.2
percent in North America and Western Europe, and nearly 28
percent in Latin America and the Caribbean, fuelled by strength
in Brazil. Sales tumbled 19 percent in the Asia Pacific region
and fell 5.2 percent in Africa, Eastern Europe and Turkey.
Overall, Diageo's sales by volume fell 1 percent in the
(Reporting by Martinne Geller in London; Editing by Louise
Ireland and Jon Boyle)