‘Hard work ahead’: Diageo shares soar as Drastic Dave’s cost savings lift investor spirits
Diageo shares jumped as much as eight per cent on Thursday after the London drinks giant vowed to deliver as much as $850m (£631m) in cost savings, as new boss Dave Lewis vowed to turn around the firm’s fortunes.
The FTSE 100 owner of Guinness, Johnnie Walker and Tanqueray reported a three per cent dip in sales to $19.6bn in the year to end June, with profit tumbling by more than a fifth to just under $2bn.
But the company said it expected to stem the decline in sales next year while the savings would deliver rising profit.
Boss Dave Lewis, known as ‘Drastic Dave’ for his turnaround efforts at previous firms including at Tesco, vowed to build “a more agile and competitive operating framework” focusing on “customer, customer, customer.”
Lewis, who joined Diageo at the start year, appeared to soften the ‘premiumisation’ strategy of his predecessor in the role after customers traded down from pricey spirits to cheaper alternatives, dealing Diageo a financial blow.
“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,” Lewis said.
Diageo said it saw sales growth of 5.7 per cent and 16.9 per cent in Europe and Latin America, though this was offset by a 8.3 per cent slide in sales in Asia and a 9.1 per cent plunge in North America.
The company slashed its dividend from 63 to 30 cents per share, and took a $1.5bn impairment knock, largely from the writedown of its business in Turkey.
“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,” Lewis said.
Chris Beauchamp, Chief Market Analyst at investing and trading platform IG, said “desperate times call for desperate measures” and Lewis was delivering on his mandate.
“The slashing of the dividend is the kind of thing only incoming chief executives with a mandate to save the business are allowed to do without cratering the share price – the market was prepared for it anyway after the half year was given similar treatment to today’s full-year figure,” Beauchamp said.
“Now comes the hard part, convincing and then showing investors that the turnaround plan is going to pay off.”