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With China’s Woes Continuing, Diageo Reportedly To Write Down ShuiJingFang Stake

July 28, 2014

With global spirits producers confronting an increasingly challenging landscape in China, Diageo is reportedly set to write down its stake in upscale Chinese white spirits (baijiu) maker ShuiJingFang. The drinks giant is expected to announce an impairment charge on the value of ShuiJingFang on Thursday when it releases its full-year results, according to the Financial Times. The paper said the size of the writedown will be lower than £250 million ($425m). Diageo didn’t immediately respond to a request for comment on the reported writedown.

When Diageo achieved control of ShuiJingFang, it said the expectation was that the value of the super-premium Chinese white spirits market was primed to grow around 10%-15% annually. Instead, after a subsequent Chinese government crackdown on consumption of upscale beverage alcohol in business entertaining, ShuiJingFang and other key players in the segment such as Kweichow Moutai have seen the market stumble. In the six months to the end of December, ShuiJingFang’s sales fell 66%.

According to Impact Databank, China’s baijiu segment actually rose 2% to 496 million nine-liter cases in 2013, as producers focused on lower-priced varieties, an area outside ShuiJingFang’s traditional expertise. But even that 9-million-case increase represents a significant slowdown for a market that had advanced by 20 million cases a year earlier.

The news comes amid ongoing difficulties for key global spirits marketers in the Chinese market, including Moët Hennessy and Rémy Cointreau, both of whom have lately stated that the downturn in government consumption has taken a bite out of their respective Cognac sales.

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