Nik Jhangiani

In a trading update, the drinks giant reported that net sales for the first quarter of the fiscal year declined by 2.2% to $4.9 billion, largely reflecting the negative impact of disposals and with negligible impact from foreign exchange.

Organic net sales were flat in the quarter, with organic volume growth of 2.9% offset by negative price/mix of 2.8%, largely due to adverse mix in Asia Pacific due to the weaker results in China in Chinese white spirits (CWS). Excluding this, price/mix would have been relatively flat.

Solid organic net sales growth in Europe, LAC and Africa was offset by weakness in CWS impacting Asia Pacific results and softer performance in North America as US spirits declined, reflecting weak consumer confidence.

Diageo estimates that weakness in CWS in China negatively impacted group net sales by around 2.5% in the quarter.

However, the firm said its efforts to create a “more agile operating model” is progressing, with savings of $625 million expected over the next three years.

It says it remains “committed to delivering c.$3bn free cash flow in fiscal 26 and returning to well within our target leverage ratio range of 2.5 - 3.0x no later than fiscal 28”.

Nik Jhangiani, interim chief executive, said: “Net sales were flat organically in Q1, with growth in Europe, LAC and Africa offset by weakness in Chinese white spirits and a softer US consumer environment than planned for.

“We are not satisfied with our current performance and are focused on what we can manage and control; acting with speed to drive efficiencies, prioritising investment and adapting more quickly to an evolving consumer environment.

“We are well advanced in sharpening our strategy, and we are developing and already implementing clear plans to drive growth across the broader portfolio, ensuring that we meet relevant consumer occasions of the future.

“Early results from our initiatives to strengthen our commercial execution capabilities, notably in Europe, are encouraging, and we are embedding a more rigorous performance-driven culture across the business.

“For fiscal 26 we have updated our guidance and remain committed to delivering c.$3 billion free cash flow in fiscal 26, growing this in future years. Our confidence in delivery of this cash guidance is underpinned by increased rigour and agility to manage maturing stock, A&P spend, capex, and cost discipline.”