Diageo to take Brexit in its stride

26 January, 2018

Diageo chief executive Ivan Menezes was answering questions at a special briefing for financial journalists and analysts, on its six month interim results (January 25, see web story).

He said: “We will take Brexit in our stride. The phase one negotiations with long term transition is good. We want frictionless trade and we will trade tariff free.”

He pointed out that the drinks sector and, scotch in particular, are the largest contributors to UK exports.

On Donald Trump isolationism, he said: “Diageo is a global business. We are a focused, long-term business. Of course we want to trade unfettered. There is volatility but if the pound is weak, it does not mean we put up the price of scotch in South America.”

Asked it he thought Diageo was future proof with people in key markets drinking less and the threat of more anti alcohol legislation,  Menezes outlined three “industry-leading” initiatives. He said the company had reached out to 5 million young people and teachers about the dangers of alcohol misuse; 20m people on the perils of drinking and drive and 200m getting across the message of ‘alcohol in moderation’

He said that spirits were growing faster than wine or beer. There was a move to cocktails but, per capita people were drinking less but drinking better quality.

At the start of the briefing Menezes opened by stating: “The results show perfectly our strategy in action, consistency, strong cash flow. It shows our broad base: global brands up 5%; Reserve Brands 11% and local stars +5%.

He said the company experienced growth in all of its major markets - its key markets the US spirits up 3% and Europe up 4%.

He stressed: Growth and efficiency.  “The cycle of performance means we can invest to ensure top line growth.”

The Diageo CEO went onto to talk about the analytical rigour the current management has brought to Diageo’s global business. He talked of Polaris, a net revenue analysis system for forecasting short, medium and long term growth. He said Diageo needed more than just flair to run its business efficiently and profitably worldwide, so it can expand its profit margins and invest in its brands.

He cited Captain Morgan and Baileys as hitherto problem brands. The former had been struggling in the US and the latter globally.  Both had been turned round. Equally, Menezes described the growth in Guinness has been “astonishing” and had never been in healthier shape.

On tequila, Menezes described the sector as “very vibrant, growing fast in the US and Mexico - 43% growth. Mexico is a huge market for tequila.”

That is without Casamigoes (the recently acquired George Clooney brand, sales of which were not included in the results).

John Kennedy, president Europe, Russia, Turkey and India added: “GB is small, but bubbling.”   Is tequila the new gin he was asked?  Kennedy quipped: “ I think gin is the new gin.”

He went on: “Gin is +7% and there has been +36% growth. It’s a bit toppy. We do not expect it to continue growing (at that rate) in the UK. Gordon’s Pink has been hottest launch in the category.”

On vodka: Menezes replied: “ Vodka is 10% of our (overall) business, 60% of North America. The US is very competitive. I love our position in vodka. We have three beautiful brands. Ketel One: for bartenders, it is THE  brand. Ciroc is for celebrations.”  Smirnoff: The underlying indicators is that its brand equity is growing and there is gradual improvements.”

Kennedy added: “Smirnoff is flat but has held share against the category headwind.”

Keywords: diageo

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