Diageo to seek £100m in cost savings

Drinks giant Diageo said today it expects to save around £100m in the next year as it undertakes a restructuring of the business.

Announcing its first half results today, which saw volumes in the six months to December 31, 2008, down one per cent but organic operating profits up six per cent, the group said the second half of the year was likely to be tougher than the first half.

Consequently "we will implement a restructuring programme designed to ensure that Diageo emerges from this challenging time with improved routes to market, even stronger brand positions and enhanced financial strength", it said.

"Anticipated full year savings, in both cost of goods sold and overheads, of £100m will accrue largely in fiscal 2010," it added in a statement.

A spokeswoman said: "Our approach is more than just cost control. There are also three strategic activities which leverage our strength as a business, and these are: our approach to marketing, how we are innovating to respond to consumer trends, and how we will continue to execute our strategy in terms of customer focus."

Restructuring costs, amounting to approximately £200m, will be taken as an exceptional charge in the second half, Diageo said.

The group recorded total volumes down one per cent at 78.5m units, though organic net sales ex-duty rose three per cent to £5.1bn.

Overall organic operating profit rose six per cent to £1.7bn.

The group said the downturn had been "more pronounced" in November and December.

Diageo said its net sales in the UK were down one per cent, as result of the continuing fall in beer sales and the ready-to-drink (RTD) market.

Overall European volumes of Guinness were down eight per cent and net sales down two per cent.

Overall marketing spending had dipped slightly in the first six months, due to "media deflation" - as advertising rates fell in response to falling demand from clients.

Diageo said that despite the economic downturn it expected to deliver organic profit growth of between four and six per cent for the current financial year.