Diageo: Drinks giant aims to make $1bn in savings
Guinness maker Diageo has said it will cut costs to secure $1bn (£743m) in savings as part of a major overhaul under boss Dave Lewis to help revive its fortunes.
It came as the drinks giant, which also makes Gordon’s gin and Baileys, revealed weaker sales and profits for the past year.
The former Tesco chief executive, who was dubbed ‘Drastic Dave’ for his approach to cutting costs, said there is “hard work ahead” for the business, particularly in North America.
Around $850m (£631m) of savings is set to come from operations, with around $150m (£111m) to be saved from its supply chain.
Diageo said the restructuring costs linked to the shake-up would cost the company around $1.2bn (£0.89bn).
The company did not disclose the jobs impact of the restructuring, but it comes days after unions in Scotland warned that the group has placed 172 distillery workers at risk of redundancy.
The cost-cutting plans come as Mr Lewis seeks to return the company to growing profits and revenues after a downturn under previous chief executive Debra Crew.
The drinks firm reported a 3 per cent decline in net sales to $19.6bn (£14.5bn) for the year to June, compared with a year earlier.
It was dragged back further by weakness in North America, where net sales slid by 9.1 per cent for the year amid a fall in prices in the US and “softness” in the tequila market.
This was partly offset by 5.7 per cent sales growth in Europe, with 6.8 per cent growth in net sales in Britain, driven by continued soaring demand for Guinness, offsetting declines for some spirits.
Mr Lewis said the business is “confident” it can deliver improvement without its profits “taking a step back”.
He said: “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.”
Diageo also reduced its proposed dividend payment to shareholders by more than half compared with a year earlier following the reduction in profit.
Shares in the company lifted by 6 per cent after the update. Richard Hunter, Head of Markets at interactive investor, said: “The hugely awaited fresh strategy accompanying the full-year numbers has been met with high excitement by investors, as Diageo sets out its stall to revitalise what had become something of an ailing business.”