Diageo has joined the growing number of drinks companies warning that FY20 profits are impacted by the coronavirus.
The drinks giant estimates the negative impact in fiscal 2020 on the group’s organic net sales and organic operating profit to be in a range of £225million to £325million and £140million to £200million, respectively.
It noted the timing and pace of recovery will determine the impact within these estimated ranges.
Currently Diageo is only reporting on effects in Asia Pacific. However, the company noted “the COVID-19 situation is dynamic and continues to evolve and these ranges exclude any impact of the COVID-19 situation on other markets”.
Diageo summarised the situation in a statement to investors: “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.”
Business in Greater China
Diageo reported that 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,” the company added.
“Thereafter, we expect a gradual improvement with consumption returning to normal levels towards the end of fiscal 2020.”
On-trade in Asia Pacific
The coronavirus outbreak in several other Asian countries, especially South Korea, Japan and Thailand, has also led to events being postponed, a reduction in conferences and banquets, and a drop in tourism which have all impacted on-trade consumption.
“We expect gradual improvement throughout the fourth quarter of fiscal 2020,” Diageo stated.
Travel retail
The coronavirus outbreak has caused a significant reduction in international passenger traffic, especially in Asia.
“Recovery of passenger traffic is assumed to be gradual, resulting in weaker performance for the remainder of fiscal 2020,” Diageo said.
The company added that its primary concern remains “the welfare of our colleagues, their families and their local communities and we will continue to provide all support possible”.
“We remain confident in the growth opportunities in our Greater China and Asia Pacific business,” Diageo concluded. “We will continue to invest behind our brands, ensuring we are strongly positioned for the expected recovery in consumer demand.”
Treasury Wine Estates and Pernod Ricard have also warned the market about coronavirus issues.
