* FY EPS 95.5p/share pre-exceptionals vs f'cast around 97.7p
* Net sales down 9 pct at 10.3 bln stg vs f'cast 10.5 bln
* Sees emerging mkts improving, but never returning to past levels (Adds analyst comments, background, byline)
By Martinne Geller
LONDON, July 31 (Reuters) - Diageo, the world's largest spirits maker by sales, posted weaker-than-expected earnings on Thursday, hurt by a slowdown in China and volatility in other emerging markets.
Over the past year, the maker of Johnnie Walker Scotch whisky, Smirnoff vodka and Guinness stout has grappled with a host of issues in emerging markets - including currency devaluations, a tax increase on a beer in Kenya and a steep fall in sales of Chinese baiju spirit due to government-enforced austerity measures.
Diageo took an asset impairment charge, worth about 79 million pounds on a net basis, on the value of its nearly 40 percent stake in baiju maker Sichuan Shuijingfang, it said on Thursday. The high-end fiery white spirit brand, once popular at lavish government banquets, saw sales fall 78 percent last year.
The writedown reduced Diageo's 2014 earnings per share by 3.2 pence.
Diageo reported earnings of 95.5 pence per share before one-time items for the full year ended June 30, down from 103.1p a year before and below analysts' forecasts around 97.7p.
Net sales fell 9 percent to 10.3 billion pounds ($17.4 billion), while the average forecast was 10.5 billion, according to Thomson Reuters data.
Excluding the impact of foreign exchange rates, notably the U.S. dollar, Turkish lira, South African rand and Venezuelan bolivar, net sales rose 0.4 percent.
"This was not a vintage set of results from Diageo, but in the context of recent hiccups it counts as satisfactory," RBC Capital Markets analysts wrote.
Diageo shares, which have fallen nearly 11 percent this year, were down 0.2 percent during morning trade in London.
Diageo did not provide a forecast for the current year, but Chief Financial Officer Dierdre Mahlan told reporters that trading in North America and western Europe should continue in a similar trend as recently, though emerging markets should improve, probably in the back-half of the year.
"While we expect those to improve, the top-line performance will be dependent, to some degree, on how quickly those economies come back," Mahlan said, cautioning that a return to double-digit growth is unlikely.
Sales volume, which measures the amount of drinks sold, fell 5 percent in Diageo's Asia Pacific and Africa, eastern Europe and Turkey divisions and 1 percent in North America and Latin America. Western Europe was flat.
Bernstein Research analyst Trevor Stirling called Diageo's weak performance a "mixture of some tactical mistakes and some unfortunate positioning".
"There are certain areas where they got it wrong, such as in Nigeria, putting too much stock in southeast Asia," Stirling said. "In other areas they are just in the wrong place at the wrong time."
In the key Nigerian market, 2014 volume fell 9 percent after inflation curbed disposable incomes, leading people to opt for rivals' cheaper beers. Diageo has since lowered prices and launched cheaper brands.
In southeast Asia, volume fell 25 percent, as retailers and wholesalers reduced fat inventories amid a slowdown due to tax increases and unrest in Thailand.
In Kenya, the company's value brand Senator Keg saw sales fall 80 percent after an October excise duty increase.
In China, volume fell 20 percent, but Diageo is trying to rebuild its position with cheaper versions of Shuijingfang baiju that will appeal to private drinkers rather than banquet planners. ($1 = 0.5912 British pound) (Editing by Jane Merriman, David Holmes and Dale Hudson)