Diageo Plc Chief Executive Officer Paul Walsh will step down after almost 13 years shaping the company into the world’s largest distiller and hand over the reins to his chief operating officer.
Ivan Menezes, 53, will take the helm on July 1 and Walsh will leave the board as of September, the company said in a statement today. To aid the transition, Walsh will stay on for a year before retiring from Diageo on June 30, 2014.
Menezes is “a man of great vision,” Chris Wickham, an analyst at Oriel Securities Ltd., said today in a Bloomberg Television interview. “He’s been very clear about the company’s approach to M&A: acquiring local spirits and using that distribution to spread Diageo’s global brands.”
Menezes became COO in March 2012 after leading the company’s North American unit for eight years. During his tenure as COO, Diageo bought Brazilian cachaca brand Ypioca as well as winning approval to buy a Chinese maker of white spirits. More recently, Menezes worked alongside Walsh to help engineer a deal to buy a stake in United Spirits Ltd., giving the company greater access to the fast-growing Indian whiskey market.
Menezes will focus on “a continuation of the existing strategy,” he said today in a phone interview, including achieving mid-term guidance, continuing the shift to emerging markets and growing existing brands through innovation and through encouraging consumers to trade up to pricier variants. “I’ve been extremely fortunate to be at Paul’s side for the last 13 years and been very much alongside him shaping the company. Our strategy is clear, and it’s not complicated.”
Walsh has led the maker of Johnnie Walker whisky since 2000 and was responsible for the company’s transformation. He jettisoned stakes in foodmakers such as Burger King and Pillsbury to focus on alcohol.
The stock has more than tripled under his management, aided by the almost $10 billion he spent on acquisitions such as the 2001 takeover of Seagram Co.’s liquor businesses with Pernod Ricard SA for $8.15 billion, through which Diageo gained brands including Captain Morgan rum. The company bought Turkey’s Mey Icki raki brand in 2011.
Diageo shares were largely unchanged at 1,970.5 pence at 12:44 p.m. local time. The stock has advanced 10 percent this year, giving it a market value of 49.5 billion pounds.
“The pivotal role which Ivan has played in building this position for the business demonstrates that he is the right person to lead Diageo on the next stage of its journey,” Walsh, 58, said in an e-mailed statement. “It has been a privilege to lead this great company.”
Walsh has been with the distiller since before it was Diageo. The executive joined Grand Metropolitan’s brewing unit in 1982, rising to become its finance director in 1986. He later held positions, including that of Pillsbury CEO, at other Grand Metropolitan businesses. Diageo was formed by a merger of Grand Metropolitan and beermaker Guinness in 1997.
“We see this as a well-flagged transition, with Menezes appointed as COO a year ago,” wrote Martin Deboo, an analyst at Investec Plc in London, describing Menezes as having been the “de facto CEO-designate.”
Diageo is seeking to increase profitability over the next three years and expand its sales by an average of 6 percent annually. It reported a 5 percent increase in revenue in the first nine months of this year, and a 4 percent increase in the third quarter, as sales in the U.S. and Asia offset a 4 percent slump in western Europe, where consumer-goods companies are suffering as austerity initiatives squeeze consumer spending. In its last fiscal year, Diageo booked net sales of 10.7 billion pounds ($16.6 billion).
“Diageo and Pernod had a scintillating fiscal 2011-2012, but this year hasn’t been quite as good,” Investec’s Deboo said today. “They both had recent quarters where growth slowed, which attracted market scrutiny. Menezes, therefore, has an immediate priority to deliver organic growth.”
Diageo is seeking to gain 50 percent of its sales from so-called fast-growth emerging markets as European sales wane. The company will also continue to focus on its performance in North America, Menezes said.
“Even emerging markets go up and down,” the executive said, adding that having North America as a steady engine of growth is a plus for Diageo. Walsh has “passed the baton in a good position in the race, and now I need to accelerate that.” The company will assess further acquisitions, he said, but “the overriding opportunity for Diageo is really to drive organic growth.”
Menezes said he will celebrate his appointment with a glass of Johnnie Walker Blue Label whisky on a flight from London to New York today. The brand, which can retail for more than 130 pounds, is among Diageo’s most expensive.