Capital return

Diageo hands £4.5bn to shareholders amid strike threat over pay

Diageo CEO Ivan Menezes

Ivan Menezes: steady progress (pic: Terry Murden)

Drinks giant Diageo is to hand a further £4.5 billion to shareholders as the company faces strike action over a ‘derisory’ pay offer to workers at its distilleries.

The return of capital follows a £2.8 billion share buybacks and will be accompanied by a 5% rise in the final dividend to 68.6p per share (65.3p).

Operating profit came in 9.5% higher at £4.04 billion, driven by organic growth, on a 5.8% rise in sales net sales to £12.9 billion. Sales of Scotch whisky rose 6%.

Ivan Menezes, chief executive of the Johnnie Walker to Guinness group, hailed “another year of strong performance.”

He said: “Our focus on quality sustainable growth is backed by a culture of everyday efficiency that enables us to invest smartly in marketing and growth initiatives while expanding margins.

“These results reflect the steady progress we are making and as we look ahead we see attractive opportunities to deliver consistent growth and create shareholder value. In the medium term I expect Diageo to maintain organic net sales growth in the mid-single digit range and to grow organic operating profit ahead of net sales in the range of 5%-7%.” 

However, the company faces potential disruption after the Unite union confirmed that talks mediated through the Advisory, Conciliation and Arbitration Service (Acas) have collapsed.

Unite has stated that ‘no progress’ has been made following two rounds of talks with the company as the union is set to ballot more than 500 workers at the company’s Leven, Cameron Bridge and Shieldhall sites from 29 July. The ballots will close on 16 August.  

If the ballots are successful it is likely that discontinuous strike action will take place from late August to November. The dispute relates to the annual pay award with Unite’s membership overwhelmingly rejecting a pay offer of 2.5%, described by the union as “derisory”.

An increase in product allowance was made to the workforce which voted by 95% to reject the pay offer. During the Acas talks the company raised the offer to 2.8% through the consolidation of the product allowance, which has been considered insignificant by Unite’s Diageo membership. 

Unite regional industrial officer Bob McGregor said: Unite willingly entered the talks with Diageo through Acas in an effort to get the company to seriously revise their paltry pay offer. During these talks it soon became clear that no progress would be made because the company have attempted to repackage the pay offer making it appear more generous.

“The reality is that the latest offer is just as insulting as the previous one, and our members won’t be conned or denied what they deserve. Unite’s members will be balloted from next week and Diageo will face inevitable industrial action from next month unless they seriously get back round the negotiating table.” 

Whisky booms

Scotch whisky represents 25% of Diageo’s net sales and was up 6% with broad based growth across all regions except Europe. Scotch growth was driven by Johnnie Walker, which delivered a strong performance with net sales up 7%.

It benefited from the successful launch of “White Walker by Johnnie Walker” inspired by the TV series Game of Thrones.

Game of Thrones

Scotch whisky was boosted by Game of Thrones

Primary scotch brands grew 9% largely driven by Black & White in Asia Pacific and White Horse in Latin America and Caribbean and Asia Pacific. Buchanan’s grew 8% in Latin America and Caribbean and 4% in North America. Scotch malts were up 12% with growth coming from Asia Pacific, North America and Europe benefiting from the launch of the “Game of Thrones Single Malt Scotch Whisky Collection”.

Old Parr returned to growth this year, as the brand lapped tax changes in Colombia. JεB continued to be under pressure in Europe led by the challenged scotch category in Iberia. Scotch continued to decline in Korea driven by declines in Windsor.

GB sales growth

In Great Britain, net sales grew 4%, with Diageo gaining share across beer and spirits. Gordon’s and Tanqueray both delivered strong double digit growth, both benefitting from strong growth of their innovation variants.

Ready to drink grew 17% driven by the Gordon’s premix range. Guinness net sales grew 4%, driven by a strong performance for Guinness Draught and the continued growth of Hop House 13 Lager.

Across Baileys, Smirnoff and Captain Morgan supply chain actions as well as commercial negotiations following recent pricing decisions have resulted in net sales decline.

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