Smirnoff vodka distiller Diageo is facing restructuring costs of up to £250 million in order to deliver annual savings of £200 million by mid-2017. The news comes as the company struggles to cope with emerging market challenges and falling beer sales.
The maker of Guinness and Baileys announced the news today (January 30th) in its interim results report covering the six months to December 31st 2013.
Ivan Menezes, chief executive officer of the company, said: “Over the next two months we will set out detailed plans to simplify our processes and de-layer our organisation.
“This will create a more agile, accountable and effective organisation to deliver our performance ambition. I expect this to deliver cost savings of £200 million a year by the end of fiscal 2017.”
Mr Menezes told analysts that it was too early to give any further details. The company estimates that the cost of restructuring would be anywhere up to £250 million.
He is more optimistic about the business’ performance during the second half of the financial year, but doesn’t expect the volatility of the market to improve.
Numis analyst Wyn Ellis issued a statement saying he expected consensus estimates of business performance to be revised downwards.
“Volume and margin trends were disappointing in H1, driven by weakness in emerging markets: North America remains the driver of the business, but even here some modest slowdown is anticipated. We expect continued volatility in emerging markets and in currencies,” he added.
Diageo is expecting a £280 million hit from currency translation for the full year. The company demonstrated that organic net sales were up 1.8 per cent, and reported an operating profit increase of one per cent to £2.06 billion in the six month period.
Although net sales were up in the UK, organic net value sales dropped by one per cent across western Europe. Diageo believes the decrease was driven by a tough economy in southern Europe and Ireland plus weak beer sales.
The company claimed its growth in this country was boosted by reserve brands - including Ciroc and Talisker - and product innovations such as Smirnoff Gold and Baileys Chocolate Luxe.