Diageo eyes £625m cost savings after profits plummet 28%

Guinness maker Diageo has reported a slump in profits and accelerated cost saving plans (Liam McBurney/PA) Liam McBurney

Guinness maker Diageo is ramping up cost-cutting measures after revealing a dramatic slump in profits during what bosses described as a "challenging year". The London-listed spirits giant, which also produces Johnnie Walker whisky and Gordon's gin, saw operating profits plummet by nearly 28% as consumer demand weakened.

The company is now targeting £625 million in cost savings over the next three years, up from its previous goal of £500 million. Net sales edged marginally lower as younger consumers continue to moderate their drinking habits, putting pressure on the spirits industry.

Interim boss addresses job concerns

Nik Jhangiani, who is serving as interim chief executive, insisted the savings plan is "not about job cuts" but acknowledged that "there will be some" redundancies. He stressed that Diageo could still increase its overall workforce despite the restructuring efforts.

The cost reductions will come from advertising and promotion efficiencies, reduced overheads and supply chain improvements. The announcement comes during a period of significant upheaval at the company following the sudden departure of its previous leader.

Former CEO steps down abruptly

Debra Crew stepped down as chief executive with "immediate effect" last month following what the company described as a "mutual agreement". Her departure came after a recent decline in Diageo's share value, reflecting broader challenges facing the drinks industry.

Tariffs, cautious consumer demand and increased cost pressures have weighed heavily on businesses across the sector. The company's struggles mirror those of other major drinks manufacturers grappling with changing consumer preferences.

Mixed performance across markets

Diageo reported net sales of 20.2 billion US dollars for the year, down 0.1%, although organic sales grew by 1.7%. The drop was attributed to unfavourable currency rates and changes to the company's brand portfolio.

In Europe, the picture was more positive with net sales up 0.4%. Great Britain performed particularly well with a 6.7% rise in sales, despite a decline in volume.

Guinness demand outstrips supply

The stronger British performance was driven by continued strong demand for Guinness, though this was hampered by "supply constraints". Some pubs ran short of the Irish stout earlier this year as the company struggled to meet demand.

Operating profits fell 27.8% to 4.33 billion dollars (£3.3 billion) in the year to June 30. The significant decline reflects the mounting pressures facing the spirits industry globally.

Jhangiani said the company remained confident about long-term prospects despite current challenges. "While macroeconomic uncertainty and the resulting pressure on consumers continues to weigh on the spirits sector, we believe in the attractive long-term fundamentals of our industry," he said.

(PA/London) Note: This article has been edited with the help of Artificial Intelligence.