Diageo has launched a three-year programme to improve efficiency and restore growth under new chief executive Sir Dave Lewis. The drinks group will target an additional US$1 billion in cost savings while ruling out further acquisitions or major asset disposals.
After six months reviewing Diageo, new chief executive Sir Dave Lewis has launched a programme to reinvigorate the world’s largest premium spirits group.
Significantly, he said he does not intend to pursue any further mergers or acquisitions, or dispose of additional assets once the sales of East African Breweries and the Royal Challengers Bangalore cricket franchise have been completed.
Lewis intends to strip an additional US$1 billion in costs from the business over the next three years, over and above the existing US$650 million programme, which is largely complete. He plans to achieve this by redesigning the operating model and overhauling the supply chain.
He refused to be drawn on the number of job cuts involved but pointed out that there are many inefficiencies created by duplication across the company. Diageo has budgeted for US$514 million in severance costs.
Investing through cost savings
In the coming year, Diageo expects organic sales to remain broadly flat and operating profit to grow by a low to mid-single-digit percentage, supported by cost savings.
“The savings will allow us to invest in innovation selectively where we need to improve our competitiveness, but they also allow us to do so without needing to reduce operating profit,” Lewis said.
A key focus will be ready-to-drink products, where Lewis has said the group is underperforming.
The announcement prompted a 6.5% rise in Diageo’s share price, which was also supported by a moderate improvement in the company’s results for the year to the end of June.
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Results edge ahead of expectations
Diageo’s net sales fell by 3% to US$19.6 billion, while organic sales declined by 2%. However, the group’s operating profit increased by 2%.
Reported group operating profit fell 27% to US$3.2 billion, reflecting US$900 million of restructuring charges and a US$1.5 billion impairment, largely related to the impact of hyperinflationary accounting and pricing changes in Turkey.
The results were slightly ahead of analysts’ forecasts.
China and North America remain difficult
The biggest headwinds in the latest results came from Chinese baijiu and the North American market.
Without the effects of Beijing’s policies on baijiu, organic net sales would have been only half a percentage point lower than in 2025 and organic operating profit would have increased by 4.5%.
Although the company reported growth in Europe, Latin America and Africa, chief financial officer Nik Jhangiani said the “biggest challenge” remained North America, where organic sales fell by 8.4% as tequila sales dropped by 21%.
Outlook for the year ahead
Diageo expects to gain market share in North America next year but warned that sales in the region would decline by a mid-single-digit percentage.
Lewis said there was “hard work ahead” before the company returned to growth in the market in around two years.
For the coming financial year, Diageo expects organic sales to remain broadly flat and operating profit to grow by a low to mid-single-digit percentage, supported by the planned cost savings.
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