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Start of a "new chapter" for Diageo - Analysis

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Yesterday, Diageo turned in a healthy set of fiscal full-year 2017 numbers as first-half momentum continued into the six months to the end of June. 

Diageo chairman Javier Ferran assumed the role in January

Diageo chairman Javier Ferran assumed the role in January

As part of the announcement, CEO Ivan Menezes confirmed plans to raise the company's productivity goal from GBP500m to GBP700m (US$917.7m) through to the end of fiscal-2019. In notes released after the comments, analysts called the move part of a "new chapter" for the firm. 

"CEO Menezes has done the hard yards in making the wiring stronger after some difficult years," writes Jefferies analyst Edward Mundy. "The cost savings upgrade points to greater cost consciousness with new chairman Ferran targeting a more aggressive agenda." 

Javier Ferran, former Bacardi CEO, assumed the role of chairman on 1 January.

Mundy called the new chairman and the cost-saving acceleration part of a "new chapter" in the firm's ambition to be "one of the best performing, most trusted and respected consumer products companies in the world". 

Bernstein's Trevor Stirling, who upgraded the stock to 'outperform', says the company is "over-delivering" on cost-saving expectations. 

"Not only does this lead to the upgraded guidance, it frees up more money for increased A&P to support growth," he adds. 

Menezes said yesterday that Diageo plans to plough most of the cash back into the business. 

Jefferies's Mundy adds: "With two-thirds of the cost-savings programme to be reinvested behind top-line growth initiatives, we do not see the company prioritising near-term profitability over long-term growth and brand equities." 

Mundy also points out that this is only the start of the journey for Diageo, with other initiatives there for the taking. 

"In addition to greater cost consciousness we see an opportunity for increased speed of decision-making and local accountability through de-layering, accompanied by a more aggressive incentivisation structure," he adds.  

"I can see us getting Smirnoff into growth in the US next year" - Interview - Diageo CEO Ivan Menezes


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