UK: Diageo mulls job cuts, still eyes acquisitions
Drinks giant Diageo is considering cutting jobs as part of a cost savings programme designed to save up to GBP100m (US$142m) annually.
Diageo, which today (12 February) reported 18% rises in net sales and profit for the second half of 2008, plans to implement the cost savings programme in its fiscal second half, producing savings of up to GBP100m annually from the firm's fiscal 2010, beginning 1 July 2009.
just-drinks understands that the group expects a GBP200m one-off charge directly related to the scheme in its second half this year.
Speaking at the firm's results conference, group CEO Paul Walsh said the cost savings initiative would cover "all markets" and may include a number of job losses, while also focusing on greater on supply chain efficiency. He declined to give specific details at this stage.
A spokesperson for Diageo told just-drinks that the move was a "prudent" measure, rather than a necessary response to the global financial crisis.
Despite a first half sales and profit rise, Diageo said today that it was trimming its full-year guidance for organic operating profit growth, from a previous range of between 7% and 9% to a new range of 4% to 6%. It blamed weakening economies in key markets across North America and Western Europe for the move.
Operating profit grew by 6% in the first half, but Walsh said: "Current economic trends indicate that consumer confidence will reduce further and the outlook for the second half is more difficult to predict."
European markets were particularly tough for the drinks firm during the six-month period, with net sales down 3% and volumes down 5%. Spain performed badly, reporting an 18% drop in net sales. The group said that Spain's "worsening economy led to a steep decline in consumer demand and reduced distributor and wholesaler ability to fund stock at previous levels".
North America remained relatively solid during the first half, with Diageo reporting 2% growth in volumes and a 4% rise in net sales. The firm said it was buoyed by a premium spirits market that has continued to increase sales and market share during the economic downturn. Around 50% of Diageo's spirits, including Smirnoff and Crown Royal, are positioned in the premium category.
Going forward, Walsh said that Diageo's cashflow remains strong and that the group has the funds to pursue acquisitions, should it wish to do so.
He told just-drinks that acqusitions in 2009 would "depend on the opportunities that arise". He appeared to distance himself from increasing Diageo's presence in wine, however. "The wine sector is a lot less attractive than it was a year ago," he said, in response to the expected sale of Foster's Australian wine business.
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