Guinness-maker Diageo reports falling profits

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Diageo, the British maker of alcoholic drinks, reported Thursday a slump in profits, hit by falling sales of whisky in China and economic strains in Venezuela and Russia.

Net profits slid 18 percent to £1.31 billion ($1.98 billion, 1.75 billion euros) in the six months to December 31 — the first half of the group’s financial year — compared with the equivalent period one year earlier.

In China, sales of Scotch were “down 22 percent as the effects of the government’s anti-extravagance measures persist”, Diageo said in its earnings statement.

A government campaign in China against corruption has cut consumption of top-branded consumer goods such as Diageo’s Johnnie Walker whisky.

The maker of Guinness stout, Smirnoff vodka and Baileys liqueur also referred to “tough trading conditions in Russia and Eastern Europe” in Thursday’s statement.

Diageo added that “sales and operating profit were significantly impacted by negative foreign exchange, driven by the strengthening of the pound against many currencies, in particular the Venezuelan bolivar, the Russian ruble and the euro”.

Diageo, which makes also Captain Morgan rum, began its latest trading year by taking majority control of India’s United Spirits.

United Spirits Limited (USL) gives Diageo the firm’s vast distribution network for its flagship Johnnie Walker, the whisky of choice for India’s upper middle classes, and other products.

But most importantly United Spirits gives Diageo entry into the popular lower-priced, domestically-made segment of the whisky market.

“The half saw Diageo acquire control of USL, putting us in the position to create an iconic leader in spirits in an attractive market,” Diageo chief executive Ivan Menezes said Thursday.

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