Diageo to cut costs by $1bn in company overhaul
Guinness ownerDiageohas announced plans to cut costs by $1bn over the next three years as it overhauls its operations and supply chain. The drinks group, which on Thursday reported a 22. 9% decline in operating. . .
Guinness ownerDiageohas announced plans to cut costs by $1bn over the next three years as it overhauls its operations and supply chain. The drinks group, which on Thursday reported a 22. 9% decline in operating profit and a 3% fall in sales for its last financial year, said a redesign of its operating framework would deliver $850m in savings. Of those savings, 40% are expected to be made during the current financial year and the remainder in 2027-28. Diageo also expects to make $150m in savings from supply chain initiatives; 25% will be made in 2026-27 and the balance in the following years. The group said it would spend a total of $1. 2bn to restructure, the vast majority of which will be invested in the operating framework, with 70% of costs having already been incurredDiageo reported severance costs of $514m for the 12 months to the end of June, up from $73m a year earlier. Diageo CEODave Lewisdeclined to say how manyjobs have been cut. He said the major changes were focused on global, back-office functions and in areas where there was "massive duplication" in processes in countries, regions and globally. Some savings would also come from cutting back spending on more capacity in anticipation of growth that ultimately never materialised, Lewis said. Shares in Diageo were trading as much as 11% higher following the announcement before falling back to around 5. 5%, marking one of its best days since late 2020. In its preliminary annual results, Diageo reported net sales of €19. 6bn, down 3% from 2025, while operating profit declined 27. 2% to $3. 2bnLewis said the group's outlook was shaped by weakness in its largest market, North America, which is expected to decline next year, stabilise in two years, and grow thereafter. Sales in North America declined 8. 4% last year, but Lewis said he was confident of restoring performance without sacrificing profitability. Globally, Diageo expects mid-single-digit organic operating profit growth with earnings per share growth and cumulative free cash flow of $8bn over three years after exceptional cash costs by 2029. Pictured at the opening and during the tour was Sir Dave Lewis Diageo CEO,Colin O’Brien – Global Head of Beer Supply, Diageo,Ewan Andrew – President, Global Supply & Procurement and Chief Sustainability Officer, Diageo and Gráinne Wafer – Global Category Director Beer, Vodka, Liqueurs and Convenience and Dayalan Nayager President of Europe Diageo. (Pic: Julien Behal)Chris Beckett, consumer staples analyst atQuilter Cheviot, said Lewis seemed to be living up to his 'Drastic Dave' nickname with deeper cuts that will last longer than many expected. "If it can hit its three-year targets, however, then the pain of this restructuring will be considered worth it and investors should see greater returns once again," he said. Photo: Empty pint Guinness glasses at the Dial Arch public house in Woolwich on December 24, 2024 in London, England. (Pic: Bryn Colton/Getty Images)Sign up to The Business Plus Panel to help shape the business decisions of tomorrow and win vouchers for your opinions!