Diageo, the Johnnie Walker and Guinness producer, has announced a plan to save $1 billion over three years after operating profit fell 27.2% in the first half.
The cuts will come from operating framework redesign ($850 million) and supply chain initiatives ($150m), with total restructuring costs of around $1.2bn.
Chief executive Sir David Lewis will tell shareholders at a capital markets day: “The savings will allow us to invest in innovation selectively where we need to improve our competitiveness, but they also allow us to do so without needing to reduce the operating profit.”
The distiller and brewer posted a 3% fall in net sales to $19.64bn due to weakness in North America and Asia Pacific, though Europe, LAC, and Africa showed growth.
Reported operating profit fell 27.2% to $3.156bn, largely becauseof $0.9bn in restructuring charges and $1.5bn in impairment charges, primarily related to Türkiye and brand write-downs.
However, adjusted operating profit increased by 2% to $5.683bn, with an improved margin of 28.9% and the company is recommending a full-year dividend of 50 cents per share, in line with its new policy.
In his remarks to investors today, Sir Dave said he would outline the “progress we’ve made over the past six months, the strategic direction we have chosen, and to provide medium-term guidance.
“This new strategy, executing with a new, more agile, competitive and cost-effective operating model, gives us confidence that we can return Diageo to a business consistently creating value for shareholders.
“We remain a business with a very strong premiumisation agenda, but by activating our wider portfolio, we will be able to serve more consumers, across a variety of occasions.
“There is hard work ahead, particularly in North America, where improving performance is a clear priority, but we are confident we can deliver without taking a step back in operating profit. The team and I look forward to sharing more this afternoon and to the work ahead.”
Market reaction
Chris Beauchamp, chief market analyst at investing and trading platform IG, said: “Desperate times call for desperate measures, which is why Diageo hired Desperate Dave in the first place.
“The slashing of the dividend is the kind of thing only incoming CEOs with a mandate to save the business are allowed to do without cratering the share price – the market was prepared for it anyway after the half year was given similar treatment to today’s full-year figure.
“Now comes the hard part, convincing and then showing investors that the turnaround plan is going to pay off.”
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