Walsh: wine not attractive

Published: 23 July, 2008

Paul Walsh, the chief executive of Diageo, the world's largest alcoholic drinks group, expects consolidation in the industry to continue and believes his company will play a part in that process, writes Ron Emler.

'There will be selective opportunities we will look at,' he said, implying that Diageo would seek to fill niches in its portfolio, such as its 200 million purchase of Bushmills last year. However, any potential acquisition 'must yield a return to shareholders', he warned when announcing the group's annual results.

Walsh followed a well-rehearsed theme, pointing out that Diageo's return on capital invested in the year to end of June had risen by almost a full percentage point to 13.9%. The conclusion he drew was that 'I don't foresee a lot of opportunities in wine'. The poor potential return to shareholders was the reason for Diageo relinquishing the option it had obtained from Pernod Ricard to purchase Montana, New Zealand's biggest wine producer, as its price for not competing for parts of Allied Domecq in early 2005.

He was keen to point out that when Diageo had identified a target 'we have always got the brands we wanted', notably in the joint takeover of Seagram with Pernod Ricard in 2001. He also emphasised that as a 'total alcohol' group, wine was an important component in Diageo's global portfolio. Net sales of Diageo's wines in 2006 rose by 8% in value. The company

said that Chalone, which it purchased in February 2005, had performed 'ahead of expectations.'

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