Diageo Denies Plans To Sell China Baijiu Business

Diageo denied speculation that it is preparing to sell its Chinese baijiu business after reporting weaker first-half results and cutting its dividend, as sharp declines in China continued to pressure drinks giant. 

“Just to be clear, we have never talked about that,” Chief Financial Officer Nik Jhangiani said when asked about the possibility of selling Swellfun (Shui Jing Fang), a well-known baijiu brand. “That is speculation. And so I won’t comment on that further,” he added. Shui Jing Fang has previously denied similar rumors.

On the earnings call, when analysts raised questions about Diageo’s ongoing strategic review and potential asset disposals, Chief Executive Sir Dave Lewis offered a broader response. He said the company would not sell brands below fair value. However, if approached with an offer that it “cannot refuse” for assets within its portfolio, Diageo would listen and engage as a rational business.

“We’re not going to sell brands below fair value. If somebody were to approach us and make us an offer that we cannot refuse for portfolio assets, then as sensible businesspeople, we will obviously listen and engage with that,” Lewis said.

He added: “We are not actively out in the marketplace hawking a whole series of what people have called ‘tail brands,’ and nor are we active in a couple of things that you have speculated about.”

China baijiu business under severe pressure

Swellfun, headquartered in Chengdu in southwestern China, is a publicly listed baijiu producer. Between 2006 and 2013, Diageo gradually increased its stake in the company’s controlling shareholder, ultimately taking control and becoming deeply involved in corporate governance. Shui Jing Fang currently focuses on the sub-premium and premium baijiu segments.

In January, Bloomberg reported that Diageo had launched a systematic review of its China assets, including the possibility of a sale. The company was said to have appointed financial advisers and held preliminary discussions with domestic strategic investors and private equity firms to explore potential transactions.

Bloomberg reported that Swellfun’s current market value stands at approximately US$2.7 billion. A transaction, if completed, could generate significant cash proceeds for Diageo. However, during the recent earnings call, management statements appeared to contradict those reports.

Mid- to high-end baijiu consumption in China is heavily tied to business entertainment and gifting. Amid macroeconomic headwinds, demand in these segments has contracted sharply, affecting a wide range of baijiu brands, including Shui Jing Fang.

In a profit warning released in January, Swellfun said it expects 2025 net profit attributable to shareholders of 391.85 million yuan (about US$57.2 million), down 71% year-on-year. Revenue is projected at 3.03776 billion yuan (about US$443 million), a 42% decline. The sharp drop has returned performance to levels seen several years ago.

The impact is also reflected in Diageo’s own financial statements. The company reported that organic net sales in Greater China plunged 42.3%, with China baijiu volumes falling 50.4%. The report noted that excluding the China baijiu business, group organic sales would have achieved 2% growth. In other words, China baijiu has become a key drag on overall performance.

Dividend cut and weaker outlook

Diageo’s first-half fiscal 2026 results showed organic net sales declining 2.8% to US$10.46 billion, while organic operating profit fell 2.8% to US$3.256 billion.

The company noted that these figures exclude the impact of the China baijiu business.

Diageo also lowered its full-year fiscal 2026 guidance. It now expects organic sales to decline between 2% and 3%, with organic operating profit forecast to be flat or grow by low single digits. The outlook was weaker than previous market expectations.

On shareholder returns, the board declared an interim dividend of US$0.20 per share, sharply reduced from US$0.405 a year earlier, reflecting a more cautious capital allocation approach.

Amid weaker earnings, the dividend cut and uncertainty surrounding China, Diageo shares fell sharply in U.S. trading. The stock closed at US$86.15, down 15.66% on the day, bringing the company’s market capitalization to about US$48 billion.