Drinks giant Diageo reported a sharp fall in profit but investors welcomed new CEO Sir Dave Lewis's restructuring strategy, sending the shares around 7% higher in early trading.

Lewis, who became CEO in January after leading Tesco's turnaround, outlined a two-year restructuring programme designed to generate around $850m of annual savings from fiscal 2027.

Around $752m of this year's restructuring costs related to implementing a new operating model aimed at creating a more agile organisation while funding investment without reducing underlying operating profit, although it is not clear what the impact on workforce numbers will be at this stage.

Reported operating profit for FY2026 fell 27.2% and net profit fell 22.9%, largely due to restructuring and impairment charges after the company booked $900m of restructuring charges and $1.5bn of impairment charges, mainly relating to Turkey and the Don Papa rum brand.

Investors nevertheless welcomed the restructuring plan, which saw the shares gain in early trading.

The London-based owner of Guinness has endured a significant share-price slump over the last few years

A continued weakness in North America and Asia-Pacific offset growth in Europe, Latin America and Africa.

The drinks group said organic net sales fell 2.0% in the year to 30 June, with volumes down 0.4% and price and mix reducing sales by 1.6%, largely reflecting weaker US spirits performance and softer results from Chinese white spirits.

Reported net sales declined 3.0% to $19.6bn. Excluding Chinese white spirits, organic net sales would have been around 1.5% higher.

Cash generation improved significantly, with free cash flow rising by $463m to $3.2bn, while net debt fell to $20.5bn, reducing leverage to 3.1 times core earnings.

Diageo also confirmed the planned sales of East Africa Breweries and Royal Challengers Bengaluru remain on track to complete later this year.

The board recommended a final dividend of 30 cents per share, bringing the full-year payout to 50 cents per share, in line with the dividend policy introduced earlier this year but substantially below last year's 103.48 cents.

"We are pleased with our progress in Latin America, Europe and Africa. We are focused on recovering our competitiveness in NAM and we are working through the consequences of Government policy in Chinese white spirits," Lewis said.

"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 (c.70% of the total cost of the two year programme) with savings realised over two years starting in fiscal 27. These savings will allow us to invest in the turnaround without needing to reduce operating profit."

Analysts said the market had largely looked through the weak headline earnings figures, focusing instead on improving cash generation, expanding margins and the scale of the restructuring programme.

Richard Hunter, head of markets at Interactive Investor, said: "The hugely awaited fresh strategy accompanying the full-year numbers has been met with high excitement by investors, as Diageo sets out its stall to revitalise what had become something of an ailing business.

"The reaction to Diageo’s resolute update was immediate, positive and one of relief for an overdue transformation. Indeed, the share price performance has underlined the scale of the remedial work which needs to be undertaken, with a decline of 14% over the last year, a drop of 31% over the last two years and a vertiginous decline of 60% from the record set in December 2021."

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