Diageo braced for no-deal Brexit

As Pernod Ricard revealed that it has begun stockpiling ahead of a potential no-deal Brexit, Diageo very firmly emphasised that it too will be able to cope with any possible disruption without “material effect” on the company.

Diageo’s CEO, Ivan Menezes

Ivan Menezes, Diageo’s chief executive, went out of his way to say that the world’s biggest premium spirits company “is very keen to get a deal done.”

“We don’t see a material impact for the company as a result of Brexit but we very definitely want a deal and we are working very closely with government and actively supporting the need to get to a deal,” he said.

“Diageo is in a relatively privileged position when I compare us to other industries and sectors in terms of the impact of Brexit for us.
“Our supply chains are more indigenous and simpler. When you think of what we make in Scotland it is water, barley, peat, men, women and lots of time…. so our ability to manage supply chains relative to other industries is very much better.

“Second, our trade with Europe will be tariff free under WTO [World Trade Organisation] conditions.” They will come into force after March 29 if Britain leaves the EU without an agreement. “We won’t face a sudden penalty when trading into Europe; Johnnie Walker will go to Germany tariff free regardless of the Brexit outcome.

“There are sectors with many more challenges than us out there,” Menezes said.

“Longer term, depending on how Britain sets up trading relationships, there are potential upside opportunities in terms of new free trade agreements. Also the return of duty free trade to the UK will present a new opportunity.

“There are also some countries with which the EU has free trade agreements where we are working very closely with the UK government and the UK government is working with those countries to ensure that the UK gets the same arrangements as exist today through the EU.

“Should those not happen, they are still manageable. They are not on a scale to be material to the company.”

David Cutter, Diageo’s president of global supply and procurement, said: “We constantly look at stock and where it goes and we are very comfortable that we have the right processes in place to manage any short-term disruption. We are also very comfortable with our stock levels.”

“Our stock levels are appropriate”, said Menezes. “We face volatility in markets around the world all the time so we take in our stride our ability to adjust stock levels. It [Brexit] is not a disruptive factor for Diageo.”

“If we look at our stock levels around the world,” said Cutter,” we manage all forms of volatility. Nothing out of the ordinary is in place for us. We ship to warehouses around the world to satisfy the needs of what is coming out so there’s nothing over and above that [to prepare for a hard Brexit].

“We continually look at our supply chain to make sure we’ve got the right safety stock level including raw material and packaging so our “mitigation plans” are just to manage our supply chain to handle any small term disruption and volatility. There’s nothing major [to handle a hard Brexit].”

Menezes said: “We go out of the ports in the North – Grangemouth, Liverpool – we don’t go down South so we are comfortable we will be able to handle our shipments, including gin, which we produce in Scotland.”

“We have great relationships with all the shippers,” said Cutter, “and we are very confident of getting our products out. That includes Guinness which we brew in Ireland but pack both in Northern Ireland and the UK. We are very comfortable with our Guinness production plans. Stock levels will be fine.”

In Paris Pernod Ricard said it has taken “progressive” steps in some markets in recent months. “In some markets, we’ve already done it [ship extra stocks], in some markets, no,” the Pernod spokesman said, without giving details. “There is no panic. It’s just a plan to avoid any disruption of our distribution.”

Pernod, which includes Chivas Bros, the second largest producer of scotch whisky after Diageo, said it had not rented any new warehouses to stockpile products. Like Diageo, it hopes a divorce deal will be agreed between Brussels and London, echoing other firms in the drinks industry.

Earlier today, Diageo released its H1 results for the six months ending 31 December 2018, reporting a 5.8% increase in its net sales, which rose to £6.9 billion, while operating profits rose by 11% to £2.4 billion.

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