Diageo: USL upheaval not affecting Indian ops

5th August, 2015 by Amy Hopkins

The CEO of Diageo has stressed that a board revolt against United Spirits’ chairman Vijay Mallya has not disrupted its operations in India.

Ivan-Menezes-Diageo

Ivan Menzes, CEO of Diageo, has said the “strategic performance” of United Spirits has not been impacted by a board revolt against chairman Vijay Mallya

In April this year, board members of United Spirits, in which Diageo owns a controlling stake, cast a vote of no confidence in Mallya and urged him to step down from his role.

Mallya, who is also chairman of USL’s co-parent company UB Holdings, refused to tender his resignation.

The revolt of USL’s board came following an internal inquiry launched by Diageo into the firm’s finances.

United Spirits announced a net loss of £445 million in its full-year 2013/14 financial results – which was attributed to a write down of the value of its Scotch whisky business Whyte & Mackay as a result of its sale to Emperador.

However, the investigation found a number of transactions at USL were “diverted” to other UB subsidiaries, including Mallya’s grounded Kingfisher airline.

Speaking to journalists after revealing Diageo’s 2014/15 full year financial results, the group’s CEO Ivan Menezes downplayed USL’s internal fissures, saying they will “play out”.

“I am very pleased with the company and how it is performing,” he said. “The USL board has asked [Mallya] to step down and there’s a process we are going through. All I will say is our business is being run. The strategic performance of USL is going exactly as we wanted it to go and the issue will play out.”

Complicated acquisition

Diageo now owns a 55% stake in McDowell’s No.1 maker United Spirits – the largest drinks producer in India – after a series of protracted negotiations and set backs which lasted two years.

“We knew it would be complicated but I am very pleased,” said Menezes. He added that Diageo does not intend to increase its stake in the company in the near future and will not attempt to delist it.

Describing Diageo’s vastly increased footprint in India as one of the “game changing” features at the group over the next 10 years, Menezes added that he also believes the country’s 150% alcohol tariff will “ultimately come down”.

In addition to issues at USL, Diageo has taken a hit in the US, where it is being probed by the Securities and Exchange Commission (SEC) over the accuracy of its distribution figures.

The federal agency has requested information to ascertain whether the firm had shipped more inventories to distributors than ordered to artificially elevate sales figures.

Menezes declined to disclose any background information on the case, but said: “We take any requests from a regulator very seriously and the process is under way. We disclose our performance very transparently and I am confident about our internal standards.”

Overall, Diageo reported stagnant organic profits in 2014/15, but its net sales increased by 5% on a reported basis to £10.2bn.

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