Diageo dives on dividend shock

13 April 2012

GUINNESS and Smirnoff vodka maker Diageo unveiled plans to return £600m to investors, but then disappointed them by issuing a dour first-quarter trading update and announcing plans to cap this year's dividend.

Chief executive Paul Walsh revealed that there had been little change in the drinks giant's financial fortunes since last month's annual results.

The City was hoping for at least some hint of recovery from the struggling European business.

Diageo made £1.2bn selling its investment in the Jolly Green Giant's parent General Mills and Walsh revealed that half the cash from the sale will go towards paying off debts and the rest to shareholders.

He said revealed that the company's dividend is unlikely to grow by more than 5% until debts drop.

'This is just a rebalancing exercise to bring us more into line with other international consumer groups,' Diageo's finance director Nick Rose said after the company's AGM in London yesterday.

The shares fell 7 1/2p to 730p.

Rose said the sale of Diageo's residual stake in General Mills, and the unwinding of Burger King debt, guarantees and a better position on the pension fund would facilitate further buybacks going forward.

'We expect our free cash flow to remain at over £1bn going forward, so there is plenty of scope to continue the buyback programme,' he said.

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