Raising a glass to Johnnie Walker

JOHNNIE Walker was Diageo's fastest-growing spirits brand last year with robust advances in developing markets, as the drinks giant also held out the prospect of improving shareholder returns this year.

Paul Walsh, marking a decade as chief executive, said 5 per cent organic net sales growth in Scotch and 5 per cent growth in beer (including Guinness) helped drive 2 per cent group net sales growth.

This helped boost Diageo's underlying operating profit 2 per cent to 2.75 billion in the year to the end of June.

Johnnie Walker, where hundreds of jobs have been axed at plants in Kilmarnock and Glasgow, there was a 12 per cent net sales rise, with volumes up 11 per cent.

Diageo - the world's biggest spirits group - said: "Johnnie Walker Black Label was the fastest growing variant with double-digit net sales growth driven by Global Travel and Middle East (division], Latin America and South East Asia."

Among other key brands, Captain Morgan rum saw net sales climb 6 per cent, while Smirnoff vodka and Baileys liqueur were both down 4 per cent in tough sectors. Guinness net sales were flat.

Walsh said Diageo had a much stronger second half, when net sales rose 6 per cent. He said Diageo's size and geographic reach meant it was still a highly cash-generative company even in what was a patchy economic recovery, with the UK, Europe and North America difficult markets compared with healthier trading in Asia, Africa and Latin America.

This echoed the comments of Dutch brewer Heineken, which reported on Wednesday. Walsh said: "The strength of the economic recovery seems to be as variable as the impact of the downturn."

However, he added: "We are recommending a 6 per cent increase in the final dividend and expect to at least maintain this rate of dividend growth in fiscal 2011," The total shareholder payout rises to 38.lp from 36.1p a year earlier.

Walsh said Diageo had increased its free cash flow by 800 million to 2bn.

"You generate the cash first and then decide what to do with it," he said.

"It does give us more firepower, potentially to have an improved increase in the dividend (in the current financial year] and the potential to have a stock buyback."

The company has undertaken 11.8bn of share buybacks since being formed through the merger of Guinness and Grand Met in 1998. Buybacks increase the earnings attributable to shareholders by reducing the amount of shares in circulation.

Diageo said weak consumer confidence in North America and Europe resulted in net sales falls in those markets of 3 per cent and 2 per cent respectively.Walsh said he did not expect anything more than a slow recovery in the US.

Against the backcloth of this week's disappointing US data on fragile consumer durables sales and a weak housing market, the Diageo boss said: "I'm not expecting a snap-back, but neither am I expecting us to fall off a cliff there."

The group revealed that the UK delivered strong results, with volumes and net sales up 9 per cent and 5 per cent respectively, although Spain, Greece and Ireland remained challenging.