Diageo ‘mulls future of China business’

Diageo is reportedly examining options for its business in China, including its majority stake in publicly listed Sichuan Swellfun Co.

Citing unnamed sources, Bloomberg reported on 13 January Diageo has hired Goldman Sachs and UBS to review its assets in China.

The Johnnie Walker whisky owner has already tested the appetite of local peers and private-equity firms, Bloomberg said.

Approached by Just Drinks, Diageo declined to comment.

The UK group lists its “principal activities” in Greater China as “distilling [and] warehousing”, marketing Chinese whisky and white spirits. Diageo, which also sells some of its international brands in China, owns one distillery in the country and holds just over 63% of Sichuan Swellfun Co.

In Diageo’s last full financial year, which ran to 30 June, the company saw its sales volumes in Greater China rise 8.4% on an organic basis. Net sales fell 9% organically.

In its annual report for the fiscal year, Diageo pointed to “challenging economic conditions” and said it had shifted its portfolio in China towards white spirits and lower-aged malts. The company said the move helped volumes but “resulted in negative price/mix”.

Meanwhile, Diageo’s business in Chinese white spirits lapped a year of “strong double-digit growth” and felt the impact of “reduced consumption occasions” in the baijiu market.

The group also cut its marketing investment in China during the year.

In November, Diageo lowered its forecasts for closely-watched sales and profit metrics, citing pressures in Chinese white spirits and a soft consumer environment in the US.

A week before Christmas, Diageo announced a deal to sell its business in Kenya, which includes the UK group’s majority stake in East African Breweries, to Asahi Group Holdings for $2.3bn. A distributor in Kenya has started a legal bid to block the transaction.

Diageo’s other recent disposals have included the sale of its stake in the publicly listed Guinness Ghana Breweries to French drinks group Castel last February and the sale of Cacique rum to La Martiniquaise-Bardinet a month earlier.

In May, Diageo CFO Nik Jhangiani said the Gordon’s gin owner could make “substantial changes” to its product portfolio in the form of asset disposals.

Jhangiani was speaking after Diageo announced plans to save around $500m in costs over the next three years.