Drinks group Diageo has posted a sharp fall in profit and imposed further cost cutting as analysts believe strong growth in Guinness has quelled talk of that part of the business being sold to focus on spirits.

Operating profit for the year to the end of June fell by 27.8% to $4.34 billion and the company is increasing its cost savings target by $125 million to $625 million over the next three years.

Despite the group setback, Guinness delivered double-digit growth, and gained share in its three largest markets, while Guinness Microdraught opened new global distribution opportunities. In whisky, Johnnie Walker gained share of international whisky and scotch.

Organic net sales growth across the group is expected to be at a similar level to the last year given a continued challenging market, it said. Growth will be more weighted to the second half, with organic net sales down slightly in the first half.

It said organic operating profit growth is expected to be mid-single-digit, skewed to the second half, and will be supported by cost savings from the Accelerate programme. This also includes the impact of tariffs.

The recommended final dividend for the year is 62.98 cents per share. This will bring the recommended full year dividend to 103.48 cents per share.

Nik Jhangiani, interim chief executive, who was installed on the departure of Debra Crews, said it had been a challenging year, but in line with guidance.

“We delivered 1.7% organic net sales growth reflecting the strength of our portfolio and our diversified footprint. 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….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.$125 million, to c.$625 million over the next three years.

“We are also committed to strengthening our balance sheet and expect to deliver c.$3 billion free cash flow in fiscal 26, increasing financial flexibility whilst continuing to invest for longer term growth.

“While macroeconomic uncertainty and the resulting pressure on consumers continues to weigh on the spirits sector, we believe in the attractive long-term fundamentals of our industry and in our ability to continue to outperform.

“We are focused on what we can manage and control and executing at pace. The board and management are committed to delivering improved financial performance and stronger shareholder returns on a sustained basis.”

Shares in the company rose strongly to close 4.9% higher.

Market Reaction

Russ Mould, investment director at AJ Bell, said: “Investors are in something of a quandary with Diageo. They need to determine if the downturn in alcohol consumption is a short-term effect of squeezed disposable income or the start of a broader trend away from drinking altogether for health and lifestyle reasons.

“There are some positive signs which investors are seizing on – with the company currently seeing organic growth in four out of its five big markets. The exception being Asia Pacific – a region which has been important to recent growth both for Diageo itself and the wider drinks industry.

“Guinness remains very successful, and significantly the alcohol-free Guinness Zero has been an important component of that. This may quieten previous suggestions this part of the business might be sold so the company can focus exclusively on spirits.

“Sales of some brands may be on the agenda for any incoming new boss given a need to get the balance sheet in better shape – although the company will not want to lose any of its crown jewels.”