Diageo facing US sales probe
GUINNESS and Johnnie Walker owner Diageo is under investigation in America for artificially boosting its sales.
Shares in the drinks giant fell 2.46pc or 47p to 1860p after it admitted it is helping the powerful US regulator the Securities and Exchange Commission with its inquiries.
The i nvestigation has been sparked by allegations the firm, which is the biggest spirits maker in the world, sought to boost falling sales by shipping its spirits and beer to distributors and counting them as turnover.
Chief executive Ivan Menezes has been under pressure to improve performance in the key US market, which accounts for almost half of the group’s profit and a third of its sales.
In a statement the firm said: ‘Diageo has received an inquiry from the US Securities and Exchange Commission (SEC) regarding its distribution in the United States.
‘Diageo is working to respond fully to the SEC’s requests for information in this matter.’
It stressed it had just been asked to provide information and that the request did not technically amount to an investigation.
Allegations that another British firm has been cooking the books will further damage Britain’s standing in the corporate world.
Just last year Tesco faced the worst crisis in its 95-year history following claims it inflated its accounts by £326m to cover up dismal profits.
Rolls-Royce said in December the Serious Fraud Office had launched a formal investigation into allega- tions of bribery and corruption in China and Indonesia.
At Diageo, which reports annual results next week, Menezes has been struggling to boost growth in the developed markets after poor half-year sales.
There were disappointing sales of mid-market brands in America in January, which Menezes admitted was partly due to prices having risen too quickly for Smirnoff vodka and Captain Morgan rum.
Smirnoff has also suffered from a shift in drinking habits towards brown spirits such as whisky and bourbon.
Vodka is still the biggest seller in America, but whisky and bourbon are becoming increasingly popular.
In response to lacklustre performance, Diageo has shaken up its team in the US. It claims this has nothing to do with the SEC investigation.
It has dispatched finance director Deirdre Mahlan to become president of Diageo North America. She is replacing Larry Swartz, who will retire at the end of the year after 40 years in the drinks industry.
Mark Hubler, the boss of ‘national accounts’ in the US, is set to leave next week to join rival Johnson Brothers Liquor Company, and the firm’s chief marketing officer for North America Peter McDonough is also leaving to ‘undertake the next phase of his career’.
Of the investigation Simon Hales, an analyst at Barclays, said: ‘Clearly this is another unhelpful piece of news that will cause uncertainty for the shares.
‘If found guilty, Diageo would most likely face fines.
‘However,’ Hales adds, ‘given pre- vious precedents we expect the fines would likely be modest in the context of the group.’
Drugs firm Bristol-Myers Squibb paid £100m for doing something similar over a two year period between 2000 and 2001.
Allegations Diageo had been fiddling i ts figures comes at a sensitive time for the firm, which has been the focus of bid talk. Last month its shares rose over speculation 3G Capital, headed by Brazilian billionaire Jorge Paulo Lemann, was taking a look at a possible deal. Lehman bought Burger King from Diageo in 2010.
Diageo received the ‘request for i nformation’ from the SEC in March and has not heard anything further.