LONDON, Jan 9 (Reuters) - Britain's Terry Smith made

public for the first time on Thursday why his fund dumped its

Diageo ( DEO ) stake last year, citing problems with its new

management and early signs that weight loss drugs threatened the

drinks sector.

Smith, who has a loyal following among British retail

shareholders, explained his rationale for offloading Diageo ( DEO ) for

the first time in his annual letter to investors on Thursday.

"Diageo ( DEO ) ... has exhibited problems with its new management,"

he said, citing a lack of information about its Latin American

business. A sharp drop in sales in the region prompted a profit

warning by the world's largest spirits company in November 2023.

Diageo ( DEO ) declined to comment.

Smith, who runs the Fundsmith Equity Fund, which previously

held a top 30 stake in Diageo ( DEO ), told investors in August 2024 it

had exited its position, held since the fund's inception.

His decision came as Diageo ( DEO ) reported its first post-COVID

sales decline and struggled to restore investor confidence in

its leadership after the 2023 profit warning. New CEO Debra Crew

had taken the helm just months earlier in June.

Researchers and pharmaceutical firms are exploring whether

weight loss drugs such as Novo Nordisk's Ozempic

could be used to lower alcohol intake in people with alcohol use

disorder.

"We suspect the entire drinks sector is in the early stages

of being impacted negatively by weightloss drugs," Smith said.

While some analysts and investors do not see imminent risks,

others see weight loss drugs as adding to long-term threats,

including competition from alcohol alternatives like THC-infused

drinks and indications that consumers, especially younger ones,

are cutting back consumption in some markets.

Diageo ( DEO ) and its rivals are grappling with a sharp downturn in

sales after a post-COVID boom, with consumers in key territories

like the United States and China under pressure.

Smith said his fund would retain its position in

Brown-Forman ( BF/A ), which makes bourbon whiskey Jack Daniel's.

The fund's report for the first six months of 2024 reported 307

million pounds ($377.67 million) in proceeds from the sale of

its Diageo ( DEO ) stake over that period.

($1 = 0.8129 pounds)