Diageo has increased its cost savings target by $500m to $625m in the next three years, after recording a 39.1% drop in its net profit in the year to 30 June.

The owner of drinks brands including Guinness, Smirnoff and Johnnie Walker, reported a profit of just over $2.53bn, while its operating profit dropped by 27.8% to $4.33bn as a result of “exceptional impairment and restructuring costs”.

Diageo also reported a 1.7% increase in its organic net sales, which was driven by organic volume growth of 0.9% and positive price/mix of 0.8%.

However, its earnings per share dropped by 8.6% year-on-year to 164.2 cents.

Interim chief executive at Diageo, Nik Jhangiani, said that its full-year results were in line with its guidance, despite it being a “challenging year”.

She stated: "While we are encouraged by areas of progress and the standout performance from Don Julio, Guinness and Crown Royal Blackberry, there is clearly much more to do across our broader portfolio and brands. We recognise the need to drive meaningful growth opportunities in an evolving TBA landscape, and we are sharpening our strategy to accelerate growth.

"Our Accelerate programme is progressing well and is central to creating a more agile operating model. As such, I am pleased to announce that we are increasing our cost savings target by c.$125m, to c.$625m over the next three years."

Looking ahead, Diageo expects its organic net sales growth to be similar to that of the 2025 fiscal year, given a continued challenging market. It added that its growth will be more weighted to the second half.

Furthermore, its operating profit growth is expected to be mid-single-digit, which again will be skewed to the second half and will be supported by the Accelerate programme’s cost savings. This projection also includes the impact of US tariffs.

Following the announcement, Diageo’s share price increased by almost 5%.

Equity analyst at Hargreaves Lansdown, Aarin Chiekrie, stated that the firm’s results have managed to "stumble past analysts’ conservative forecasts".

He concluded: "Sales figures late in the year were helped by customers stocking up on booze before tariffs were expected to kick in. These ongoing tariff headwinds are expected to add around $200mn of extra costs annually.

"After a period of more than two years of relatively dispiriting performance, which has seen the share price nearly halve, former CEO Debra Crew stepped down with immediate effect in mid-July. The hunt for a new leader remains ongoing. The sobering fact is that no matter who takes the reins, wrestling the group’s leverage down is likely to remain a key target.

"Diageo could look to sell a few brands to bring in some cash and speed up the process, but it’s hard to call which brands will fall on the chopping block. Given the group’s focus on delivering higher and more sustainable free cash flows, any future sales would likely be of lower-growth and lower-margin brands."

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