A lengthy Financial Times article explains how Diageo plc’s (NYSE: DEO) emerging markets headaches worsened after United Spirits, the Indian drinks company it controls, posted a Rs44bn ($728m) annual net loss – impaired by a hefty writedown on the sale of its Whyte & Mackay whisky. The British beverage group took control of United Spirits recently from liquor baron Vijay Mallya, who is still chairman despite being just declared a “wilful defaulter” by state-owned United Bank of India in relation to Kingfisher Airlines, his airline business.
The latest blow raises questions about Diageo’s choice of assets in emerging markets and whether it overpaid for them – especially after already being forced to take a £264m writedown on the value of its controlling stake in China’s premium baijiu white spirits brand which it secured in 2012.
Chief executive Ivan Menezes had told the Financial Times back in August that Diageo’s position in emerging markets was critical to the company’s future development:
“India and Africa are the two long-term transformation players for this company and that’s what I’m determined to deliver – the potential that these markets represent.”
However, the latest debacle had Ian Shackleton, an analyst at Nomura, saying:
“There are a lot of loose ends in these accounts. United Spirits represents a huge opportunity so long as Diageo does not find itself sidetracked on sorting the business out instead of producing a meaningful profit contribution from it. In general, the company still has a lot to prove with its emerging markets acquisitions in India and China.”
To read the whole article, Diageo’s emerging market woes deepen, go to the website of the Financial Times.
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