Diageo to resume £4.5bn capital return programme

Diageo is to return billions of pounds to shareholders on the back of higher than expected profit growth, as drinking and partying around the world bounce back from the impact of Covid-19.

The distiller of Johnnie Walker whisky and Smirnoff vodka on Tuesday said that it expected organic operating profit growth to be at least 14 per cent in the financial year ending in June 2021, above market expectations of about 10.3 per cent, according to Investec.

The group, one of the world’s largest distillers and also the brewer of Guinness, will begin returning up to £1bn to shareholders, part of a broader £4.5bn capital return programme that was paused last year because of the pandemic.

This will include at least £500m of share buybacks before November 12, Diageo said, with the full capital return plan to be completed by the end of June 2024. It also has the option of returning cash through special dividends.

Ivan Menezes, chief executive, said: “I am very pleased with how our business is recovering in fiscal 21, our strong competitive performance across key markets and our robust cash generation.”

Shares in the group were up 3.29 per cent to £32.95 in morning trading. The update followed better-than-expected first-quarter figures from global brewers Anheuser-Busch InBev and Heineken; AB InBev said it had pushed up the volumes of beer it sold above those of 2019, before the pandemic, with especially strong growth in Brazil and China.

Philippe Schaus, chief executive of the wine and spirits maker Moët Hennessy, told the Financial Times on Wednesday that it expected a “post-Covid renaissance”, with consumers splashing out on more expensive brands following a year of coronavirus-related restrictions.

Unilever said last month it would begin €3bn of share buybacks, in another sign of returning optimism among consumer goods groups.

Diageo, which makes more than 200 drinks brands, said performance had remained strong in North America, its largest market, while in Europe sales of its drinks through stores were holding up well, alongside returning sales through pubs, bars and restaurants in some markets.

Most markets in Africa, Asia Pacific, Latin America and the Caribbean were recovering, it said, though sales through airports and stations remain “severely impacted”. It has also been branching out into alcohol-free versions of some of its key brands, such as Gordon’s and Tanqueray gin.

Simon Hales, analyst at Citi, said: “Having lagged other beverage stocks . . . we expect the strong trading momentum highlighted in this update and associated earnings upgrades to be well received by investors and to reinforce the core attractions of spirit business models.”

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