Presenting Diageo’s Q3FY25 results, CEO Debra Crew, outlined the company’s plan to reduce debt and mitigate the impact of US tariffs, which alone are expected to cost the alcohol company around $233 million (US$150 million) per year.
Organic net sales grew 5.9 per cent in the quarter, with a strong contribution from organic volume growth, which was up 2.8 per cent, and positive price/mix of 3.1 per cent. Net sales for Q3 were down for Europe, Asia Pacific, and Africa, and in the nine months to 31 March, Asia Pacific (3.3 per cent) and Africa (3.5 per cent) were down year-on-year. APAC price/mix declined three per cent due to continued downtrading and unfavourable market mix.
In APAC, organic net sales grew 2 per cent from favourable comparatives in this quarter with inventory reductions in South East Asia and Greater China in the prior year, and with continued growth in India. But the growth was partially offset by ongoing retailer inventory destocking in Travel Retail Asia and the transition to the Guinness license brewing model in Australia and New Zealand, which is expected to negatively impact net sales through calendar 2025.
In Europe, Guinness organic net sales were up double digits in the quarter with continued momentum from both Guinness Draught and Guinness 0.0. And despite continued focus on its tequila portfolio and growth by Don Julio and Casamigos, organic sales for spirits declined overall.
To address ongoing market challenges, Crew announced the first stage of the Accelerate program, a $500 million cost cutting initiative that will generate roughly $4.6 billion in annual free cash flow by FY26 and reduce company debt.
“We expect to return to well within our target leverage ratio range of 2.5-3.0x no later than FY28 providing us with a lot more flexibility, and which will also be supported by appropriate and selective disposals over the coming years,” Crew said.
Diageo CFO, Nik Jhangiani said cost cuts would come from the company’s trade investment and advertising spend, overheads, and supply chain.
“We see through our reviews that we have been doing internally and with the Board, some opportunities for what I would call substantial changes versus the portfolio trimming. Again, you can appreciate, I cannot say any more than that, but clearly, it is going to be above and beyond the usual smaller brand disposals that you have seen over the last three years,” Jhangiani said.
Crew said the plan did not include large-scale redundancies, but there would be changes like slower hiring rates.
