Diageo annual profit rises as gin boom drives Tanqueray sales

Operating profit before exceptional items for the year to the end of June increased to £3.8bn from £3.6bn as net sales rose 1% to £12.2bn. Organic operating profit rose 8%.

The FTSE 100 company, which also owns Guinness, said it would buy back £2bn of shares after generating £3.1bn of net cash during the year.

Net sales rose 4% in Europe and Turkey with European sales driven by 8% growth in the UK. British drinkers bought more Tanqueray as the gin boom continued and Johnnie Walker led a 6% growth in Scotch sales. Johnnie Walker also helped fuel 4% net sales growth in North America where Baileys and Don Julio Tequila sold well.

Diageo benefited from particularly strong growth in Asia of 9%, on the back of 29% sales growth in China, with India up 9% and travel retail also contributing 22% growth.

Ivan Menezes, Diageo’s chief executive, said: “Diageo has delivered another year of strong, consistent performance. Organic volume and net sales growth is broad based across regions and categories.”

Diageo shares, up 20% since the end of March, fell 1.3% to £28.11 at 09:04 BST.

Neil Wilson, chief market analyst at Markets.com, said: “Diageo results were very positive but despite very strong free cash generation and a fresh £2bn buyback shares have fallen as investors decided to take profits. Whilst it’s easy to criticise firms for buybacks, what else is Diageo supposed to do with all this cash?”

Analysts at RBC Capital Markets said sales growth and EBIT both modestly beat consensus expectations.

"Guidance is for the company’s tax rate to increase to 21-22% in 2018/19 (we’re currently forecasting 20.5%), which might put a lid on consensus upgrades, but otherwise we can find little to fault in these numbers."