Diageo warns of £200m loss from coronavirus

DRINKS giant Diageo said on Wednesday (26) that the spread of coronavirus could knock up to £200 million off its 2020 profit as bars and restaurants stay shut in China and other Asian countries.

Public health measures across impacted countries in Asia Pacific, principally in China, have resulted in restrictions on public gatherings, the postponement of events and the closure of many hospitality and retail outlets.

Several countries and many businesses have also imposed restrictions on travel.

The Ivan Menezes-led company, whose brands include Johnnie Walker Scotch whisky, Smirnoff vodka and Guinness beer, estimated the negative impact of the virus on the group's financial performance for 2020.

“…We estimate the negative impact in fiscal 2020 on the group’s organic net sales and organic operating profit to be in the range of £225m to £325m and £140m to £200m, respectively, with the timing and pace of recovery determining the impact within these estimated ranges.

“The COVID-19 situation is dynamic and continues to evolve, and these ranges exclude any impact of the COVID-19 situation on other markets beyond those mentioned above…”

The London-based business cautioned that these ranges exclude any impact of coronavirus on other markets beyond China and Asia Pacific.

Commenting on the condition in China, it added: “Bars and restaurants have largely been closed, and there has been a substantial reduction in banqueting. As the majority of consumption is in the on-trade, we have seen significant disruption since the end of January, which we expect to last at least into March.

“Thereafter, we expect a gradual improvement with consumption returning to normal levels towards the end of fiscal 2020.”

Diageo also highlighted a hit to consumption in several other Asian countries, especially South Korea, Japan and Thailand. In these countries, it expects a gradual improvement throughout the fourth quarter of fiscal 2020.

The group also called out a significant reduction in international passenger traffic, especially in Asia.

It said the recovery of passenger traffic is assumed to be gradual, resulting in a weaker performance for the remainder of fiscal 2020.

"We remain confident in the growth opportunities in our Greater China and Asia Pacific business. We will continue to invest behind our brands, ensuring we are strongly positioned for the expected recovery in consumer demand," Diageo stated.