Paul Walsh calls time on Diageo: Outgoing boss will leave the global drinks giant in high spirits - Business Analysis & Features - Business - The Independent

Paul Walsh calls time on Diageo: Outgoing boss will leave the global drinks giant in high spirits


Ivan Menezes celebrated his success landing the job as boss of the world's biggest drinks company, Diageo, with a glass of Johnnie Walker Blue Label whisky on the flight from London to New York. The promotion of the chief operating officer and company insider didn't scare the horses in the City as the shares barely twitched. But as he sipped the £130 liquor on the plane Mr Menezes might well have pondered the shoes he will have to fill when Paul Walsh, the FTSE 100's third longest-serving boss, departs.

Mr Walsh is widely credited with having steered Diageo from reliance on slower-growing drinks such as Guinness and Smirnoff, sold in mature markets, into faster-growing, emerging markets and edgier products, spending more than £7bn on acquisitions in the process.

Little is known about the Lancastrian's intentions when he steps down as chief executive at the end of next month, though given that he is only 58 a FTSE chairmanship may beckon. He will stay on as an adviser to Diageo and Mr Menezes until June next year, picking up his £1.2m basic salary in the process. He may find time for a spot of big-game hunting on his 2,400-acre estate in South Africa and add a few more trophies to the mounted heads in his study.

Mr Walsh is a colourful character who revels in a reputation for plain speaking and attracted tabloid attention with a messy divorce in 2006. But his favourite hobby offers an obvious metaphor for his corporate career, during which he has brought down more than a few big beasts. Mr Walsh became chief executive in September 2000, having joined Grand Metropolitan – which later merged with Guinness to form Diageo – in 1982. His 13-year tenure at the top of a FTSE blue-chip company is beaten only by Aiden Heavey of Tullow Oil and Sir Martin Sorrell of WPP, who founded their companies in 1985 and 1986 respectively.

He quickly set about turning a flabby consumer goods company, described by The Economist three years after the merger as "mediocre", into a drinks business. He sold off Pillsbury, which then owned the Green Giant and Häagen-Dazs brands, and Burger King to fund a move to buy the Seagram drinks business in a joint venture with Pernod Ricard. The $8.2bn (£5.3bn) deal set out the Diageo – and Mr Walsh's – stall and brought Captain Morgan rum into the stable.

It was followed by a succession of smaller deals focused on premium spirits and emerging markets. These included the 50/50 joint distribution venture with Ketel One vodka in 2008, building up a minority stake in India's United Spirits and acquiring a majority stake in China's biggest seller of rice wine, Shui Jing Fang. The United States, a division led by Mr Menezes for eight years, remains central to the group but Diageo is closing in on achieving its target of 50 per cent sales from emerging markets by 2015.

But how has Mr Walsh been for shareholders? He has added £30bn to the value of the company in 13 years, turning a £20bn company into a £50bn one. Diageo has also paid out around £12bn in dividends and turned operating profits of £2bn into earnings of £3bn over that time, which is not to be sniffed at. On top of that the share price has nearly quadrupled – though according to the Investec analyst Martin Deboo, long-term investors would have done even better putting their cash into rival company Pernod Ricard.

Mr Deboo argues that Mr Walsh's tenure was "a game of two halves", saying: "Since his appointment in September 2000, £100 invested in Diageo has grown to £538, relative to only £148 for the FTSE 100. However, £100 invested in arch-rival Pernod at the same point is now worth £671. This reflects sharp out-performance in the 2000-2007 period, when Pernod's shares quadrupled in value, while Diageo's less than doubled. Diageo only really got their share price outperformance mojo working from August 2011 onwards, with a much more vigorous strategy of top-line acceleration, cost reduction and bolt-on acquisitions in emerging markets."

On the leadership change, he adds: "We see this as a well-flagged change that is unlikely to have much impact on the shares... For us, Mr Menezes' immediate priority will be to deliver on Diageo's organic growth agenda, which has looked less sprightly recently."

Those concerns were fuelled by a blip for Diageo in its most recent quarter, when growth slowed from 5 per cent in the first half of the year to 4 per cent – short of City hopes. The company was up against tough comparisons with strong trading last year. It also struggled with the timing of shipments, which affected sales, although its US market once again underpinned sales and Diageo insists the fundamentals are unchanged.

Indeed – aside from the minor gripes over its underperformance against Pernod Ricard – it's hard to find voices in the City who believe the wheels are about to fall off with the departure of Mr Walsh. The succession has been handled smoothly and it is hard to draw comparisons with the likes of Apple and Tesco, whose shares have suffered badly since the departure of long-serving chief executives. "Diageo are a big company and they have plenty of strength on the bench. Walsh was the steward of the business rather than its creator," said one analyst.

The short-sellers are yet to move in on the firm either. According to the financial data provider Markit, just 0.2 per cent of the company's stock is on loan with short-sellers to bet against the firm, against an average of 1.3 per cent for the FTSE 100 overall. The outgoing boss can drink to the health of his global giant.

How it all measures up

£11.2m How much Paul Walsh received in pay and bonuses last year

5 per centDiageo's sales growth for first nine months of financial year

4 per cent Sales decline in western Europe over the same period

£10.76bn Diageo's net sales for the last financial year

John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing
peopleThe report and photo dedicated to the actress’s decolletage has, unsurprisingly, provoked anger
Home body: Badger stays safe indoors
The programme sees four specialists creating what they believe are three perfect couples, based on scientific matchmaking. The couples will not meet until they walk down the aisle together
tvUK wedding show jilted
Arts and Entertainment
US pop diva Jennifer Lopez sang “Happy Birthday” to Gurbanguly Berdimuhamedow, president of Turkmenistan
musicCorporate gigs become key source of musicians' income
Arts and Entertainment
You've been framed: Henri Matisse's colourful cut-outs at Tate Modern
artWhat makes a smash-hit art show
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
filmsDaniel Craig believed to be donning skis as 007 for first time
Mikel Arteta pictured during Borussia Dortmund vs Arsenal
champions league
Yes supporters gather outside the Usher Hall, which is hosting a Night for Scotland in Edinburgh
voicesBen Judah: Is there a third option for England and Scotland that keeps everyone happy?
Arts and Entertainment
Pulp-fiction lover: Jarvis Cocker
booksJarvis Cocker on Richard Brautigan
Arts and Entertainment
Robin Thicke and Pharell Williams in the video of the song, which has been accused of justifying rape
music...and he had 'almost no part' in writing it
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Sales Executive

£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

Payroll & Accounts Assistant

£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...

SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Senior BA - Insurance **URGENT**

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week