Shares in Diageo (DGE) soured 2.8% to £28.78 after the alcoholic drinks colossus served up a profit warning following ‘significant’ disruption to drinks consumption across the Asia Pacific region caused by the coronavirus outbreak.
The Captain Morgan rum-to-Tanqueray gin maker could see as much as £325m wiped from its top line this year due to the spread of the alarming virus, although the global spirits leader also assured the market it remains ‘confident in the growth opportunities in our Greater China and Asia Pacific business’.
QUANTIFYING CORONAVIRUS HIT
Diageo downgraded top line growth guidance in January whilst delivering half-year results and also softened investors up for a coronavirus outbreak impact, though it was unable to quantify the hit at the time.
In today’s update, the Johnnie Walker whisky-to-Smirnoff vodka maker estimates the negative impact on its organic sales and organic operating profit in the 2020 financial year could be ‘in a range of £225m to £325m and £140m to £200m’ respectively with ‘the timing and pace of recovery determining the impact within these estimated ranges’.
CHINA IN LOCK-DOWN
Demand for the FTSE 100 spirits giant’s products have been hit by public health measures being implanted across Asia Pacific, principally in China.
These 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 travel restrictions.
For example in Greater China, bars and restaurants have largely been closed and Diageo expects this ‘on-trade’ disruption to last ‘at least into March’.
Spirits consumption has also been sapped by the postponement of events in South Korea, Japan and Thailand, while the outbreak has also triggered a slump in international passenger traffic, especially in Asia.
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Diageo, whose fortunes are guided by chief executive Ivan Menezes, warned ‘the COVID-19 situation is dynamic and continues to evolve’ and cautioned ‘these ranges exclude any impact of the COVID-19 situation on other markets beyond those mentioned above. We will continue to monitor the situation closely.’
However, Diageo said it remains 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.’