Diageo halves interim dividend as US weakness hits sales Proactive uses images sourced from Shutterstock
Diageo PLC cut its dividend as new chief executive Sir Dave Lewis said he wanted more financial flexibility to restructure the company, as weaker US spirits demand and softness in Chinese spirits weighed on first-half performance.
Net sales fell 4% to $10.5 billion in the six months to end-December, with organic sales down 2.8%.
Growth in Europe, Latin America and Africa was more than offset by weakness in North America and China. Excluding Chinese white spirits, organic sales would have been around 2% higher.
Operating profit declined 1.2% to $3.1 billion, with pre-exceptional earnings per share falling 2.5% to 95.3 cents.
Free cash flow was $1.5 billion, after a negative period a year ago, and net debt stood at $21.7 billion, roughly flat since June.
Lewis signalled a broader strategic reset, saying he sees “significant opportunities” to enhance competitiveness and broaden the portfolio to drive higher growth.
He outlined a renewed focus on category strategy, customer execution and a redesign of Diageo’s operating framework, as the group seeks to deliver stronger, more sustainable shareholder returns.
“To deliver on these opportunities, we need to create more financial flexibility. Accordingly, the Board has taken the difficult decision to reduce the dividend to a more appropriate level, which will accelerate the strengthening of our balance sheet.
“We are confident that this is the right action which will ensure that Diageo can reinforce its position as the leading international spirits business and drive stronger shareholder value over the coming years,” he said.
The interim dividend was cut to 20 cents from 40.5 cents a year earlier as the board reset the payout policy to 30-50% of earnings, with a minimum 50 cents per year.
For the current financial year, Diageo now expects organic sales to fall 2-3%, with operating profit flat to up low single digits, but reiterated guidance for $3 billion of free cash flow.