How Diageo plc Is Changing

What does the future hold for investors in Diageo plc (LON:DGE)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Successful companies don’t stand still. They’re always evolving. Today, I’m looking at the changes taking place at FTSE 100 drinks giant Diageo (LSE: DGE) (NYSE: DEO.US). — and what they mean for investors.

Paul Walsh, chief executive of Diageo from 2000 to 2013, transformed the company into the world’s leading premium drinks business, delivering a fantastic return for shareholders in the process. Brand acquisitions, including over £2bn of deals in his final two years, were a key part of Walsh’s strategy.

Change of boss

Diageo’s chief operating officer, Ivan Menezes, stepped up to the top job last summer in a well-flagged succession. In a Q&A session with analysts, Menezes said that while the drinks industry is not yet fully consolidated and Diageo would continue to look at acquisition opportunities, “My focus really is on making the acquisitions we’ve made deliver”.

diageoAnother change Menezes has signalled is accelerating the growth of Diageo’s premium core brands (over 60% of the group’s business), and to “win in reserve [high-end luxury brands] in every market”.

The chief executive is also “driving a mindset change to ensure we deliver productivity gains continuously” — de-layering the organisation to drive out costs being just one plank in a strategy that he expects to deliver savings of £200m a year by the end of Diageo’s fiscal 2017 (the company has a June year end).

Looking to the future

Menezes has a hard act to follow, but has set out his stall on how he intends to drive organic sales and profits growth. Despite recent concerns about emerging markets, he sees plenty of scope for organic growth. He has in his sights 1.3 billion new middle-class consumers in emerging markets in the next 10 years, and 400 million new high net worth, luxury-brand consumers around the world.

While Menezes has so far focused on integrating his predecessor’s acquisitions and putting in place his own plans for forward organic growth, Diageo does have the balance-sheet strength to turbo-charge growth with acquisitions, as in the past; indeed, we’ve already seen the company acquire two small tequila brands. Bigger acquisitions could be on the cards, if the time and price is right. Menezes has said: “We will look at everything; we will look at global brands as and when they become available”.

On the face of it, a well-executed strategy of organic growth and choice acquisitions could be as rewarding for shareholders in the next 10 years as in the past 10.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester does not own any shares mentioned in this article.

More on Investing Articles

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »