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Walsh admits Chinese frustration
Diageo chief executive Paul Walsh has admitted his frustration at the slow progress of the company’s attempted takeover of Chinese spirit producer Shui Jing Fang.
Speaking as Diageo announced a 15% rise in half-year pre-tax profits, Walsh said the protracted process “is taking much longer than we originally thought”.
Diageo bought a 43% share in Quanxing, the holding company with the stake in Shui Jing Fang, in 2007 and increased its stake by 6% in 2008.
In February 2010 Diageo increased its stake by 4% to 53% at a cost of £14million, making it the indirect controlling shareholder in Shui Jing Fang. Under Chinese takeover laws, Diageo was obliged to make an offer to buy out other Shui Jing Fang shareholders.
While steering clear of outlining exactly what was causing the delay, Walsh said: “We remain confident that the deal will go through and we are also still confident in the Chinese market, but yes, it is taking a lot longer than we thought it would.”
Walsh credited the 15% rise in pre-tax profits to decent trading in emerging markets, though Europe remains troublesome.
The producer of Smirnoff vodka, Johnnie Walker whisky and Guinness made profits of £1.6bn, with sales up 3% to £7.1bn.
The company said continuing economic pressures in Greece, Iberia and, to a lesser extent, Ireland, led to a 13% sales decline across these markets.
UK net sales grew 1%, while the improving economic conditions in Russia and eastern Europe produced net sales growth of over 20%. The rest of Europe produced a net sales decline of 1%.
In the US, volume growth returned led by the growth of the spirits category.
Diageo has increased marketing spend in North America by 12%, with further increases in investment behind strategic spirits brands.
A Diageo source said the increase in marketing spend was driven by the need to “capitalise on an increase in the popularity of premium and super-premium spirits in the on-trade”.
See tomorrow’s Finance on Friday for a full analysis of the Diageo results.
Alan Lodge, 10.02.2011