Diageo has reported an expected fall in profits for its full year but the drinks group's shares rose on confidence over its progress this year and news that it will continue its buy back programme.
After exceptional items, the profit before taxation and minority interests decreased by GBP147m from GBP1,969m to GBP1,822m in the year to 30 June 2005.

However, Diageo said that organic growth in net sales (after deducting excise duties) was 4% and operating margin expanded 0.6 percentage points resulting in organic operating profit growth of 7%.

Turnover reached GBP9,036m, up 2% on a reported basis and 4% on an organic basis. Operating profits (before exceptionals) reached GBP1,944m, representing 2% in reported growth and 7% in organic growth.

Diageo's global priority brands continue to be the engine for growth with volume and net sales (after deducting excise duties), excluding ready to drink, up 3% and 6% respectively.

Although ready to drink now represents 6% of Diageo's volume and around 10% of net sales (after deducting excise duties), weakness in the ready to drink segment continued and volume and net sales (after deducting excise duties) declined 3% and 5% respectively. This reduced overall net sales (after deducting excise duties) growth by over 1 percentage point.

Paul Walsh, chief executive of Diageo, said: "The range of Diageo's premium drink brands together with our geographic reach gives us the ability to consistently deliver top and bottom line growth and strong cash flow. That is exactly what we have delivered this year. At the same time we have continued to build our brands, with over GBP1bn of marketing investment. We have also improved our routes to market, particularly in the world's biggest premium drinks market, the United States and made value creating acquisitions of brands which widen our brand range even further."
By early morning, Diageo shares had risen 1.9% to 807 pence. The rise was primarily down to news of continued buybacks and confirmation of confidence in 2006.

Walsh said: "Diageo's balance sheet is now as focused on our position as the world's leading premium drinks company as our operations have been for a number of years. Therefore, given the continued strong performance of our free cash flow, we will now be able to increase the amount of our share buy back programme. For fiscal '06 we are proposing a programme of around GBP1.4bn.

"As we said at our recent trading update, we expect that in '06 volume growth will again be 3% and net sales (after deducting excise duties) will be 4%. Better pricing and a stabilising ready to drink trend may give us the opportunity to improve on the net sales (after deducting excise duties) growth we achieved this year. We believe operating profit growth can be similar to that achieved in '05 even after allowing for higher growth in marketing spend and higher pension costs."

In North America, strong top line growth together with overhead reduction delivered organic operating profit growth of 11%. Volume grew 4% and Diageo gained share in the United States across all three categories - spirits, wine and beer.
In Europe, operating profit grew 3% despite challenging trading conditions and further contraction of the ready to drink segment. Volume and net sales (after deducting excise duties) were down 1% and 2% respectively. Excluding ready to drink, volume and net sales (after deducting excise duties) increased 1% as price increases on global priority brands were offset by weak local priority brands in Ireland.
The International business delivered operating profit growth of 4% while increasing marketing investment by 15%. Strong volume growth in Latin America and some Asian markets together with a number of price increases drove net sales (after deducting excise duties) up 9%. Marketing investment was increased in new growth markets such as China and behind the global priority brands where spend was up over 25%.