New Diageo chief suffers growth pains
ABROAD smile breaks over the face of Ivan Menezes. The Diageo boss is talking about emerging markets and touches on his homeland.
He proudly explains India is key to the drinks giant because its consumer base is so diverse. It is one of the powerhouse countries that has driven growth for the Johnnie Walker-to-Guinness maker.
The company has even enlisted some of Republic of Congo’s working-class fashionistas, the sapeurs, in a stylish mini- documentary to help sell Guinness.
But in a disappointing half-year update, which wiped as much as 5pc from shares, a trio of emergingmarket countries caused a surprise slowdown in its sales growth.
In his first interview since taking over from Paul Walsh, Menezes said: ‘This has been a tough half. We are not immune to challenges but our geographic diversity and range of brands mitigate that impact.’
A political crackdown on gift giving to officials in China, unrest in Thailand, and inflation in Nigeria, caused net sales growth to slow to 1.8pc in the six months to December 31 from 2.2pc over the three months before.The shares fell to 1,805.50 down 105.58.
Menezes announced a raft of selfhelp measures aimed at keeping the world’s biggest drinks firm in shape. He set out a plan to cut costs by £200m annually for the next three years that will inevitably mean more job cuts.
‘I wouldn’t go into detail at this point,’ he said. ‘We will work the details in the next couple of months. What I would say is our focus here is entirely driven by improving the effectiveness of how we execute the day-to- day business, and there are going to be areas where we employ more people and increase investment.’
He would not say if the net impact on jobs impact would be flat. ‘I am not in a position to give details about that right now. We will do the work and consult with our teams over the next couple of months.’
The firm, which also owns Smirnoff and Gordons Gin, has managed to offset hiccups in some markets with its broad geographic footprint, following the purchase of local drinks firms in places like Turkey, Brazil and India.
It said over the six-month period net sales rose 4.6pc in North America and 1.3pc in emerging markets. Sales fell 1pc in slow-growth Western Europe which was better than expected.
Diageo also noted a bigger than expected hit from negative currency movements to the tune of £280m.
Since taking the helm six months ago Menezes has wasted no time stamping his mark on the business, saying: ‘In the past six months it has become clear the business is not ideally structured to deliver value.’ He now wants much of the decision-making process decentralised to local markets. This includes simplifying the organisation and making more efficiencies as well as improving profit margins.
Menezes said: ‘We’ve evolved and changed the operating model. We’ve put more ownership and accountability in the 21 markets around the world.
‘It’s about building more depth and strength in markets and leveraging our scale. A lot of this scale is in information technology and shared service centres. If we get the back office logistics and supply chain running efficiency I still see a lot of scope to get a new wave of productivity into the business.
‘We are absolutely going to steer brands like Johnnie Walker and Guinness globally – we are not talking about decentralised decisions where brands can be managed differently in different markets.
‘For us to be an agile, stable, front-footed company it’s about building very strong teams in market, the ability to feel the pulse move with alacrity and seize opportunities.’ There will be a one-off charge of up to £ 250m to cover the restructuring.
Menezes would not be drawn on whether he would join the auction for beer and spirits group San Miguel but did say he was interested in more emerging market acquisitions. He claimed American drinks firm Beam, which accepted an agreed bid from Japan’s Suntory was not ‘high on our priority’ list but said he would never ‘go on or off the record on whether we will counter bid for them’.
Diageo (down 90p at 1820p) has started an assessment on the implications of Scottish independence but said it was not engaging in the debate.
Menezes said: ‘Regardless of the outcome we want to protect the health of the business. We want to make sure nothing comes in the way of the great success story for the country.’
While he describes his new role as his dream job, investors will view yesterday’s hiccup of slowing growth as more of a mini-nightmare.