Market says ‘cheers’ to Diageo’s strong profit and £1.5bn buyback

Shares in Diageo hit an alltime high yesterday as the spirits giant popped the cork on a £1.5 billion share buyback and raised its profit margin target over the three year period to June 2019.

It came as Scotland’s largest Scotch whisky business also announced operating profits up 25 per cent to £3.6bn on sales up 15 per cent at £12bn in the year to end-june.

Looking ahead, Diageo chief executive Ivan Menezes said the company was unlikely to be harmed by Brexit as World Trade Organisation rules meant it would still be able to trade tariff-free within the EU after Britain leaves.

Menezes said: “We take Brexit in our stride. I don’t see a scenario where we are harmed. But clearly we want a smooth Brexit without conditions that make it difficult for business. We don’t want trucks stopped at the border.”

Diageo has raised its profit margin improvement target from 1 per cent to 1.75 per cent. Menezes said he now expected some £700 million of productivity savings over three years, with two-thirds of that being reinvested, particularly in the key Scotch and American businesses.

The group’s previous savings target was £500m. Share buybacks are often popular in the City because they increase the earnings and dividends of the fewer shares left circulating.

Diageo has also recommended a final dividend rise of 5 per cent, bringing the total fullyear divi to 62.2p a share.

Chief financial officer Kathryn Mikells said the group still had capacity for “small and medium sized” bolt-on acquisitions like the £1bn purchase last month of film star George Clooney’s tequila brand, Casamigos.

Meanwhile, Menezes said the company had benefited from broad-based organic net sales growth in its latest year, up 4.3 per cent.

In North America, Diageo’s flagship Scotch brand, Johnnie Walker, reported organic net sales up 6 per cent, while Buchanan’s was up 7 per cent.

The combined Europe, Russia and Turkey markets delivered sales growth of 5 per cent, with Tanqueray gin seeing a double-digit sales rise.

In Britain, sales grew 3 per cent, with Captain Morgan rum up 6 per cent, while in Russia Johnnie Walker and Bell’s sales also hit doubledigit growth.

Menezes added that overall Diageo had turned in “an eight or nine out of ten”, The shares closed at 2,408.5p after earlier hitting 2,429.5p.