SHolders of shares in Johnnie Walker-to-Smirnoff’s beverage giant Diageo are expected to pay billions of pounds in share buybacks or special dividends, as the company’s rebound by Covid meant chief executive Ivan Menezes could resume his job. investor cash return program.
Menezes froze the Return of Capital (ROC) program last April, after returning £ 1.25bn to investors on a long-term £ 4.5bn return plan.
Today, in a surprise announcement, he said he was able to announce the resumption of payments after seeing earnings growth return to levels likely to exceed 14% this fiscal year.
This was better than the 10% growth expected by investors.
Shareholders can expect £ 1bn in payments by the end of fiscal 2022, with £ 500m in share buybacks in November.
However, it looks like cash returns could still be slower than initially expected due to Covid. A more conservative target date for returning the full £ 4.5bn to investors has been created, with a two-year extension until June 2024.
Diageo’s plan follows Unilever’s pledge earlier this month to repurchase up to € 3 billion of shares in what will be its first buyback program since 2018. It also saw a strong rebound in demand for its products from buyers.
Buyouts are trending around the world from multinationals that have experienced a strong recovery from the pandemic, raising their coffers beyond what they need to invest in their businesses.
During Covid, they amassed cash to get them through the crisis, but now feel confident enough to return the surplus to their investors, giving pension funds a much-needed boost after suffering a drop in their income the last year as the world’s biggest companies paid dividends. on the ice.
The Goldman Sachs study today showed that U.S. companies announced $ 484 billion in share buybacks in the past four months – the highest levels in at least two decades.
Menezes said all regions recovered well in the first half of their fiscal year as underlying sales returned to growth. Its largest market in North America had been particularly strong amid what he called “resilient consumer demand.”
Amid bar and hotel closures, Diageo has heavily focused its marketing efforts on in-store sales in Europe, which have paid off, while partial reopening of the leisure industry further boosted sales.
Sales at airports and other travel channels “remain severely affected,” Diageo said.
Menezes said he wanted to invest in the business to drive sustainable growth, including acquisitions of other businesses, but added, “When we have excess cash, we’ve made it clear that we will look to return it. to the shareholders. ”
He said: “We are confident that Diageo will continue to perform effectively in this challenging environment and come out stronger.”
UBS will buy back Diageo shares on its behalf.
Diageo will seek permission to repurchase up to 10% of its shares at its AGM this year to facilitate the program.
Jefferies brokers welcomed the statement, urging clients to buy Diageo shares up to 3600p from last night’s 3190p.