Diageo boss in £743m cost-cutting plan to deliver turnaround
Johnnie Walker owner Diageo has said it will cut costs to secure one billion dollars (£743 million) in savings as part of a major overhaul under boss Dave Lewis to help revive its fortunes.
It came as the drinks giant, which ranks as Scotland’s largest whisky producer and also makes Gordon’s gin and Baileys, revealed weaker sales and profits for the past year.
The former Tesco chief executive, who was previously dubbed “Drastic Dave” for his approach to cutting costs, said there is “hard work ahead” for the business, particularly in North America.
Around 850 million dollars (£631 million) of savings is set to come from operations, with around 150 million dollars (£111 million) to be saved from its supply chain.
Diageo said the restructuring costs linked to the shake-up would cost the company around 1.2 billion dollars (£0.89 billion).
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.
On Thursday, the drinks firm reported a 3 per cent decline in net sales to 19.6 billion dollars (£14.5 billion) 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 Great Britain.
Stronger British sales were driven by continued soaring demand for Guinness, which grew by “double digits”, 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.
Diageo revealed in May that sales grew unexpectedly in the latest quarter as growth in Europe helped to offset weaker trading in the US.
The FTSE 100 firm said buoyant demand for Guinness in the UK and Ireland helped drive a rise in sales in Europe.