Cheers! Diageo tops £2.3bn but it looks hard ahead

Drinks giant Diageo pushed profits above £2.3 billion in the last year as consumers around the world responded to the growing economic gloom by reaching for a stiff drink.

The Guinness, Smirnoff and Johnnie Walker maker continues to throw off huge amounts of cash — good news for shareholders in uncertain times.

The 9% rise in profits for the year to June enabled the world's biggest spirits maker to return £1.9 billion to investors in dividends and share buybacks. It admits profit growth next year may slow, but is mostly in good cheer.

Finance director Nick Rose said: "We feel good about things in a fairly uncertain world."

He said North American performance held up "extremely well" despite the subprime mortgage crisis that has hit the finances of so many consumers.

Sales of Guinness rose 6% — a rare sign of life in an otherwise moribund beer market. Guinness is soaring in popularity in Africa, but it is also back in vogue in the UK and Ireland, defying predictions that its glory days are over.

Some analysts think Diageo will eventually do a mega deal with a large beer brewer to plug the only serious gap in its portfolio. David Liston, beverage analyst at Barclays Wealth, says: "What they are doing is waiting for the beer companies to sort themselves out and then it is not beyond the bounds of reason for them to merge with a company such as Heineken."

Rose seems at least open to the idea. "We continue to look for ways to become a total beverage alcohol player," he said.

Chief executive Paul Walsh is regarded in the City as somewhat deal-shy, but that could change if Diageo finds it hard to keep growing profits.
For next year Diageo is predicting profits growth of between 7% and 9% — a range that indicates the company realises it could be hit by a global recession.

It has upped the final dividend by 5% to 34.35p a share.

Sales were up 8% to £8 billion, bang in line with analysts' expectations. Rising costs of ingredients and oil mean margins will come under pressure, suggesting the company needs to innovate to keep profits high.