Diageo has revised its financial outlook and significantly reduced its interim dividend as new Chief Executive Officer Sir Dave Lewis takes charge. The company reported a 2.8% decline in underlying operating profits, totaling $3.26 billion (approximately £2.4 billion) for the six months ending December 31. This decline mirrors a similar drop in underlying sales.
The firm has downgraded its full-year sales expectations for the second time in three months, now forecasting a decrease of 2% to 3%. This adjustment is attributed to ongoing sales challenges in the United States, alongside predictions for flat earnings or a slight increase in the low single digits.
Cost-Cutting Measures and Dividend Reduction
In response to these financial pressures, Diageo is implementing significant cost-saving measures. The company anticipates achieving approximately 50% of its targeted cuts within the current financial year. In a move that has disappointed investors, Diageo announced it would more than halve its interim dividend as part of its strategy to strengthen its financial position.
Sir Dave Lewis, who previously led Tesco, emphasized the need for a comprehensive strategy to revitalize Diageo. He stated, “Only several weeks in, I can already see significant opportunities for Diageo to act more decisively to enhance its competitiveness and broaden the portfolio offering leading to higher growth.”
Lewis highlighted the importance of creating more financial flexibility to capitalize on these opportunities. “Accordingly, the board has taken the difficult decision to reduce the dividend to a more appropriate level which will accelerate the strengthening of our balance sheet,” he added.
Future Strategy and Investor Confidence
The board remains optimistic that these measures will solidify Diageo’s status as a leading player in the international spirits market and enhance shareholder value over the coming years. An updated strategic plan is expected to be revealed later this summer, which aims to address current challenges and leverage opportunities for growth.
As the company navigates this transition, Diageo’s commitment to improving its financial health and competitiveness will be closely watched by investors and industry analysts alike. The forthcoming strategy will be crucial in determining how effectively the company can respond to the evolving market landscape and regain investor confidence.
