Diageo to cut costs by £200m as China growth slows

Diageo boss says emerging markets are still "very attractive"

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Diageo - the world's biggest spirits producer - has seen sales growth curbed by slowing demand in China and other emerging markets.

The drinks company, best-known for brands such as Johnnie Walker whisky, Smirnoff vodka and Guinness beer, said it would cut costs by £200m by 2017.

Around 42% of its sales are from emerging markets.

New rules over gift-giving and spending by Chinese officials dented sales in the country by 66%.

Diageo, and its rivals in the global drinks market such as Pernod Ricard and Remy Cointreau, have suffered from a tightening of rules in China over gift giving by officials.

An anti-corruption drive by the Chinese government in 2013 meant the gifting of expensive items to officials - which has long been a part of the political culture - became prohibited.

Scotch giving

Whisky, especially Scotch whisky, has been seen as a particularly attractive luxury item among China's elite in recent years.

Sales in emerging markets were up just 1.3% for the six months, and the company posted a slight increase in pre-tax profits, to £2.1bn from £1.9bn.

Sales in emerging markets were up by only 1.3% overall, it said, impacted by weakness in China and Nigeria, although the company said that emerging markets are still "very attractive" for his company.

Sales increased in North America by 4.6%, but fell in western Europe by 1%.

Over the last six months Diageo's sales increased by 1.8%, weaker than was expected.

Its share price closed down 5%.

Independence debate

Diageo which is one of Scotland's biggest employers said investment in its Scotch whisky distilleries continued "apace".

And on the issue of the independence referendum, the company said it was a decision for the Scottish people.

However in the past the company has told investors that it was drawing up contingency plans so it could continue to operate successfully whatever the outcome.

John Kennedy, president of Diageo western Europe, told the BBC: "What we continue to do is talk to the Scottish and UK governments about what are the conditions that make sure our business and the Scotch whisky industry continue to thrive in the future, so that's an ongoing conversation that we would be involved in across a wide range of issues."

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