Diageo pays US$5 million fine for publishing ‘misleading’ annual results

The Securities and Exchange Commission (SEC) has fined drinks giant Diageo  US$5 million after its North American business created a “misleading picture” of its financial results.

Diageo’s CEO, Ivan Menezes (Photo: Diageo)

According to the commission, Diageo, which makes Johnnie Walker Whisky, put pressure on distributors to take on excess stock of the companies innovation products in order to meet its sales targets, and then failed to disclose the oversupply to investors.

The charges relate to results posted for 2014 and 2015. The SEC said that Diageo’s market filings were “materially misleading to investors,” as they made it appear as though the group had reached sales targets through organic growth, rather than through pressing distributors to take “unneeded product”.

A statement from the US regulating body said that employees of Diageo North America, the group’s largest and most profitable subsidiary, “pressured distributors to buy products in excess of demand in order to meet internal sales targets in the face of declining market conditions.”

“The resulting increase in shipments enabled Diageo to meet performance targets and to report higher growth in key performance indicators that were closely followed by investors and analysts.”

Diageo’s North American business, the SEC claims, had oversupplied on newly-introduced products, on which sales are typically unpredictable, but the group’s sales team had become increasingly reliant on due to a declining market. US sales has begun falling in 2011. In July 2015, Diageo reported a 3% decline in volume sales in North America.

Diageo said it is “pleased to have resolved this legacy matter, which relates back to fiscal years 2014 and 2015. Diageo regularly reviews and refines its policies and procedures and is committed to maintaining a robust and transparent disclosure process.”

Investors rely on public companies to make complete and accurate disclosures, said Melissa R. Hodgman, an associate director in the SEC’s Division of Enforcement.

“Diageo pressured distributors to take more products than they needed, creating a misleading picture of the company’s financial results and its ability to meet key performance indicators.”

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