Diageo is undertaking a major operating overhaul expected to generate approximately $850 million of savings over two years beginning in fiscal 2027 after recording roughly $900 million of restructuring charges during fiscal 2026.
Approximately $752 million of the fiscal 2026 restructuring charges related to implementing Diageo’s new operating framework, representing about 70% of the total expected cost of that component of the two-year program. The remaining restructuring charges were associated with supply-chain agility and Accelerate initiatives.
Diageo also recorded approximately $1.5 billion of impairment charges. Those charges were largely associated with Türkiye due to hyperinflationary accounting and changes in market pricing, along with the write-down of the Don Papa brand and several smaller brands.
The exceptional charges created a sharp divergence between reported and underlying profitability. Reported operating profit declined 27.2% to $3.156 billion and operating margin fell 535 basis points to 16.1%. But operating profit before exceptional items increased 2% to $5.683 billion, while the corresponding margin expanded 116 basis points to 28.9%.
Organic operating profit also increased 2%, helped by cost savings, partly offset by adverse mix and tariffs. Reported net sales declined 3% to $19.643 billion, with organic net sales down 2%. Volume declined 0.4% and unfavorable price/mix reduced growth by another 1.6 percentage points.
Cash generation improved despite the restructuring. Free cash flow increased by $463 million to approximately $3.2 billion. Net debt ended fiscal 2026 at $20.5 billion, equivalent to 3.1x adjusted EBITDA.
Diageo expects the savings from its new operating framework to give the company greater capacity to invest in its turnaround while protecting operating profitability.
KEY QUOTES:
“The three priorities set out at the half year: i) Relevant brands in competitive category strategies ii) Customer, Customer, Customer and iii) A more agile and competitive operating framework, are serving us well and lay the foundation for the Capital Markets Day today.”
“The revised operating framework is being rolled out across Diageo and the changes are significant. In 2026 this change incurs a cost of $0.8 billion with savings realised over 2 years starting in fiscal 27. These savings will allow us to invest in the turnaround without needing to reduce operating profit.”
Sir Dave Lewis, Chief Executive Officer of Diageo
