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Whisky giant Diageo resumes plan to return up to £4.5bn to investors

The Scotsman logo The Scotsman 12/05/2021 Emma Newlands

Scotland's biggest whisky producer Diageo has restarted its plan to return up to £4.5 billion of cash to investors as it continues its bounce-back from the pandemic.

a castle on top of a building © Among Diageo's portfolio is the Talisker distillery on the Isle of Skye. Picture: Diageo.

The Johnnie Walker-to-Guinness drinks giant, which also makes Smirnoff vodka and Baileys, said it now expects full-year earnings growth of at least 14 per cent as sales have staged a further recovery since its first half.

Diageo said that, thanks to the strong performance, it will resume the plan to return cash to shareholders that was paused in April last year at the height of the coronavirus crisis.

It will launch the second phase of the programme with a £1bn share buy-back by the end of 2021-22 as part of a wider long-term aim to return up to £4.5bn to investors by June 30, 2024.

READ MORE: Johnnie Walker opens ‘Highland Home’ visitor experience at Clynelish Distillery

Chief executive Ivan Menezes said: "When we have excess cash, we have been clear that we will seek to return it to shareholders. The board's decision to resume our return of capital programme at this time reflects Diageo's improved performance in the first half of 2020-21."

William Ryder, equity analyst at Hargreaves Lansdown, said: “Diageo is feeling confident enough to restart its capital return programme as a broad recovery looks set to push underlying operating profit up at least 14 per cent.

"On the one hand, this is good news for investors, because further share buybacks will mean each remaining shareholder owns a slightly larger slice of the pie. But on the other, there’s a reasonable case for keeping buybacks on ice a little longer. Debt is still higher than is ideal.

"Diageo is a strong business with excellent brands, so while the valuation is relatively high, it’s not ridiculous. However, together, debt and valuation make a reasonable case for delaying further buybacks a little longer.”

The group last year hired Barbara Smith to lead the Johnnie Walker Princes Street visitor experience in Edinburgh and the company’s network of 14 distillery “brand homes” in Scotland. In January 2020 it pointed to “encouraging” signs as sales rebounded in key global markets where Covid restrictions have eased or been less onerous.

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