Source: Sharecast
The company said the redesign of its operating framework will deliver around $850m of savings, while supply chain initiatives will deliver approximately $150m. Restructuring costs will total around $1.2bn, said the owner of Guinness and Johnnie Walker, among others.
Chief executive and ex-Tesco boss Dave Lewis, nicknamed 'Drastic Dave', 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. 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."
News of the cost savings came alongside Diageo’s results for the year to the end of June, which showed a 2% decline in organic sales to $19.6bn and a 27.2% drop in operating profit to $3.2bn, with organic operating profit growth offset mostly by exceptional restructuring costs and impairment charges.
Diageo said growth in Europe, Latin America and Africa was offset by weakness in North America and Asia Pacific.
At 1440 BST, the shares were up 6% at 1,739p.
Richard Hunter, head of markets at Interactive Investor, said: "The reaction to Diageo’s resolute update was immediate, positive and one of relief for an overdue transformation. Indeed, the share price performance has underlined the scale of the remedial work which needs to be undertaken, with a decline of 14% over the last year as compared to a gain of 19% for the wider FTSE100, a drop of 31% over the last two years and a vertiginous decline of 60% from the record set in December 2021.
"The tenure of the new CEO may be in its early stages and the turnaround proper not yet in train, but the group’s longstanding supporters are clearly in evidence, which should result in the market consensus of the shares as a buy consolidating on prospects for Diageo’s new phase."
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