pounds 400m buy-back to boost Guinness earnings

A day after disappointing investors by failing to come up with a scheme to return cash to shareholders, Guinness moved into the market yesterday to buy 100 million shares at 463p. The move was welcomed by analysts who expect it to be marginally earnings enhancing this year.

Guinness chairman Tony Greener said: "We are clear that our strategy, growing brands of alcoholic drink around the world, remains essentially an organic one. Our principal focus is reinvestment for growth in our existing business. Financial resource, where not required in the business, will be returned to shareholders in the most efficient manner."

The share buy-back, conducted on Guinness's behalf by Cazenove, followed the announcement on Thursday of disappointing full year figures dragged down by lower profits in the company's United Distillers spirits arm.

Despite heavy spending on marketing, Guinness had to struggle to overcome depressed economies around the world.

While profits were flat, however, cash flow remained strong during the year with net debt at the Johnnie Walker to Guinness stout group falling by almost pounds 200m.

Guinness also managed an 8 per cent rise in the dividend payout which has increased by 38 per cent over the past four years, compared with an average rise of 28 per cent for FT-SE 100 companies and an inflation rate over the same period of only 12 per cent.

Standard & Poor's, the credit rating agency, confirmed its previous double A minus debt rating for Guinness, saying the move did not depart from "Guinness's historically moderate financial policies".

A return of some value to shareholders had been expected since last year's annual meeting when Guinness received approval to buy back up to 200 million shares, representing 10 per cent of its equity.

"They are setting an example that other companies should follow," Panmure Gordon analyst Colin Humphreys said "When you have fairly mature businesses that aren't really growing but generate lots of cash, you should return money to shareholders."

Guinness shares edged 4.5p higher to 465p as analysts factored in earnings enhancement in a full year of about 1.7 per cent. The deal is expected to increase gearing to 33-35 per cent by the end of the year, compared with expectations that gearing would fall during the year from 28-23 per cent.

LVMH, the French luxury goods and spirits business which owns 20 per cent of Guinness, did not take part in the buy-back and its stake rose by one percentage point as a result. Announcing its own results on Thursday, the French company said it had no intention of reducing its holding.

Guinness said that under UK tax law, 325p of the cost of buying each share would be counted as a distribution. Tax exempt shareholders would therefore be eligible for a tax credit worth 81p a share.

Comment, page 23

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