Diageo recently posted healthy pre-tax profits of £2.1 billion but there have been a serious of curious indications of the apparent state of its finances.
Save money – dump the old folks
The first incident was when Diageo suddenly refused to donate a bottle (yes – that’s one bottle) of whisky to the charity, Age Concern’s Christmas Prize Draw at Hurlford near Kilmarnock.
Diageo has made this modest contribution in the past but this year the charity received a letter quoted as saying that ‘we are unable to support projects and organisations outside this focus area’. The ‘focus area’ in question is named as: ‘responsible drinking and lifelong learning community initiatives’.
Those cared for by Age Concern are of course universally irresponsible drinkers and have little lifelong learning time left.
It would be churlish to mention Diageo’s recently accelerated vodka promotions in the same breath as this laudable focus on responsible drinking. The postscript is that local anger did eventually see the donation of the bottle restored.
Save more – dump the Labour Party
Then the Diageo-dominated Scotch Whisky Association (SWA) did a high profile dumping of the Labour Party.
Traditionally the SWA has hosted a whisky reception at the Labour Party Conference – to be held in Brighton next week – dispensing free drinks to thirsty delegates. Not this year. The loss will leave a black hole in conference entertainment as the SWA receptions have aways been one of the bright spots, handing out the most expensive drams for nothing.
The SWA has denied that it is dumping its reception for the Labour Conference because it has lost faith in Gordon Brown (who has changed tack on damping down tax on whisky). SWA simply says the reception has become too expensive.
However, it has confirmed that it will still host receptions for David Cameron and the Tories and even for Nick Clegg and the Lib Dems. But a 33.3% cut in its conference season entertaining is a significant saving.
Look and learn. This is how power games are played.
And save a great deal more – leave Port Ellen as a basket case
We also understand that a rumour is circulating that a Diageo representative has let it be known that the company is not certain it actually has the funds to renovate Islay’s Port Ellen maltings as planned – let alone deal with other needs like emissions, a new chimney and the relocation of the silos. Back in November last year the silos terrifyingly collapsed beside the houses close to them.
Port Ellen is clearly a ruinously expensive job to be beyond the purse of a company with a £2.1 billion annual re-tax profit.
These penny-pinching actions are not the signs of a healthy company, but perhaps shareholders should keep their eyes firmly on the profits posted and read the apparent instability as philosophical, psychological – perhaps in some cases (and perish the uncharitable thought), even tactical – rather than financial.
Hurlford may have been threatened with the loss of its one bottle of whisky for the old folks’ Christmas draw because of a Freudian recoil from the entire Kilmarnock area – with Diageo’s reputation profoundly damaged by its irresponsible abandonment of the loyal town.
The sudden shortage of money for needed work on the Port Ellen maltings may presage the corporate strategy we have predicted for some future point in our article: Diageo: the real issue is the Scotch Whisy industry. A company constantly tweaking its profit margins is not going to spend money on a plant to which it privately has no long term commitment.
It would be uncharitable to see this planted rumour alternatively as a less than covert threat feeding through the grapevine to Argyll and Bute Council. The message might be that, should the Council’s Planning Committee dare to require so august a multinational company to move the Port Ellen silos to a location more reassuring to those who live under them – Port Ellen might become Kilmarnock 2.
But who would blame any company for losing faith in Gordon Brown. Why did it take so long?