- Diageo plans to cut $1 billion in costs over the next three years as part of a business turnaround.
- The spirits giant reported lower sales and profits, with North America continuing to weigh on performance.
- New CEO Sir Dave Lewis said the company will broaden its product focus instead of relying heavily on premium spirits.
Diageo is launching a $1 billion (£745 million) cost-cutting programme as new Chief Executive Sir Dave Lewis looks to revive growth at the world's largest spirits company after another year of weaker sales and profits.
The FTSE 100 drinks maker, whose brands include Guinness, Johnnie Walker and Smirnoff, said it expects to generate around $850 million in savings through restructuring over the next three years, alongside an additional $150 million from supply chain improvements.
The announcement came as the company reported softer demand across several key markets, particularly North America, prompting a broader overhaul of its strategy.
A reset for changing consumer habits
Sir Dave, who took over as chief executive at the beginning of the year, signalled a shift in Diageo's approach as consumers continue to cut spending amid economic uncertainty.
Rather than depending heavily on premium spirits, the company plans to place greater emphasis on its wider portfolio of brands to appeal to consumers looking for more affordable options.
Speaking about the turnaround, Sir Dave reportedly said Diageo would begin "activating our wider portfolio" as part of its growth strategy.
The restructuring programme is expected to cost around $1.2 billion, although investors welcomed the plan, sending Diageo shares up 7 per cent, or 121p, to £17.62.
The company also confirmed its previously announced decision to halve its full-year dividend to 50 US cents per share, saying the move would provide greater financial flexibility.
North America remains the biggest hurdle
For the year ended June, Diageo reported organic net sales of $19.6 billion, down 2 per cent from the previous year. Operating profit fell 27.2 per cent to $3.15 billion, while pre-tax profit declined to £2.56 billion, compared with £3.5 billion a year earlier.
The biggest drag on performance continued to be North America, which accounts for around 37 per cent of Diageo's global sales. Organic sales in the region fell 8.4 per cent, with the company pointing to weaker demand, increased competition and softer sales of tequila.
Sir Dave reportedly acknowledged there was "hard work ahead", particularly in North America, which he described as a key priority for improving performance.
Asia Pacific also remained under pressure, with sales falling 6.3 per cent, largely because of continued weakness in China's baijiu market.
Europe, however, delivered a brighter performance. Organic sales rose 3.4 per cent, supported by stronger demand for Guinness in the UK and consumers purchasing drinks ahead of the FIFA World Cup. Diageo's Latin America and Caribbean business also recorded growth, with sales increasing 7.7 per cent.
The results underline the challenges facing the global spirits industry as consumers become more selective with spending. Diageo is now betting that lower costs, a broader product mix and a stronger focus on underperforming markets will help restore growth over the coming years.
