Scotland’s biggest whisky producer Diageo to return up to £4.5bn to investors

Giant drinks manufacturing company Diageo plans to resume payments totalling £4.5 billion to investors. The British multinational has decided the time is right to continue returning cash to shareholders in the wake of the COVID-19 pandemic.

As well as whiskies under various labels, Diageo also produces Baileys Irish Cream and Smirnoff vodka. A company spokesman reported that sales were recovering after the worst effects of the Coronavirus lockdown. Thanks to favourable results in the first six months, expectations were for annual growth of 14 per cent or more.

Three-year timescale

In April 2020, the board of directors decided to shelve the return of cash to investors, though only temporarily. Now, strong performance means that the programme can now continue.

Share buybacks will amount to £1 billion by the end of the company’s 2021-22 financial year. Its bosses plan to release £500 million, half of the total, by the middle of November this year (2021). Launched in 2019, the buyback of shares looks set to extend to the end of June 2024, two years longer than initially anticipated.

Pleasing performance

Ivan Menezes, the company’s chief executive, commented that he was delighted with how the drinks business was recovering. He described how improved sales turnover had generated excess cash.

Off-licence sales of Diageo’s popular branded products had continued without significant interruption. Trading had been strong in the USA, Diego’s largest export market.

Despite the global challenges of the last year or so, European sales had remained reasonably buoyant. However, as expected, pub, cafe and restaurant closures had hit business. Mr Menezes expressed relief that hospitality outlets were reopening and ordering again, in line with the gradual lifting of restrictions in the UK and abroad.

Significantly, the company’s travel division suffered a fall in profits of some 8.3 per cent between July and December 2020, mainly because of continued limitations on air movement. Pre-tax profits amounted to £2.2bn in that half-year, while net sales turnover was £6.9bn (down by 4.5 per cent).

Expert comment

Analysts at finance experts Hargreaves Lansdown described news of the payouts as good for investors. Whereas some short to medium-term shareholders would probably sell, analysts pointed out that the remainder would then own a slightly higher proportion of the company capital.

However, company debt was still higher than ideal. The financial advisers commented that it might have been more prudent to have delayed the additional spending plans for longer.

Award-winning centres

As the biggest whisky producer in Scotland, Diageo operates fourteen distillery brand exhibitions. At the end of April (2021), the group reopened the refurbished Highland visitor centre at Clynelish Distillery. This renovation project formed part of a £185m outlay on tourism in Scotland, designed to transform visitor experiences at Diageo-owned sites and, admirably, promote sustainability.

Other Diageo distilleries to have received gold-standard green tourism accolades are Blair Athol, Brora, Glenkinchie, Lagavulin and Royal Lochnagar. The corporate property portfolio also includes a new eight-floor Johnnie Walker visitor centre, set to open in Princes Street, Edinburgh, in June (2021).

Healthy competition

Similarly, rival alcohol beverage producer Pernod Ricard posted increased sales during the first quarter of 2021. The multinational owns Chivas Brothers. Over the three months to the end of March 2020, its turnover rose by almost a fifth (19 per cent).

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