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Diageo scraps 2020 guidance due to coronavirus

Drinks giant Diageo has said it will withdraw its fiscal guidance on net sales and profits for 2020 as the company struggles to calculate just how damaging the global coronavirus outbreak will be.

Diageo’s CEO, Ivan Menezes (Photo: Diageo)

In a statement released on Thursday, the Johnnie Walker whisky maker said it is “not in a position to accurately assess the impact of this on our future financial performance”, due to the global scale of the virus and the uncertainty around how it will impact the economy as a whole.

Diageo had already warned in February that its 2020 profits could take a £200 million hit due to widespread bar, restaurant, pub and hotel closures, as well as disruption across the global travel retail network.

Despite coronavirus infection rates dropping in China and life beginning to return to normal, Diageo said it has only seen a “very slow return of on-trade consumption,” as restaurants and bars have started to gradually re-open.

The significant impact on global travel retail, the company said, extended “beyond Asia Pacific into other markets in March”, due to a sharp drop in passenger numbers, as well as new travel restrictions imposed by many countries.

In North America, where the on-trade accounts for roughly 20% of US spirits sales, most states closed bars and restaurants last month.

There have also been significant closures of on-trade sites in most European countries, which make up half of Diageo’s 50% net sales in the region.

The group said there has been “some pick-up” in retail sales over the past few weeks, but executives say it’s too early to tell whether this is merely the result of stockpiling, or a long-term trend for 2020.

Ivan Menezes, Diageo’s chief executive, said: “During this challenging time, our top priority is to safeguard the health and well-being of our people, while taking necessary action to protect our business.

Lockdown in India has also closed both on and off-trade channels, as well as production facilities across most industries, including Diageo subsidiary United Spirits’ supply operations, until at least 14 April.

The group has now closed two production facilities in Nigeria, and on-trade channels in Africa have also been impacted.

Diageo is attempting to continue production across its global network with social distancing in place, it said, while many members of staff are also being told to work from home.

In addition, the company is “reducing discretionary expenditure and reallocating resources,” which include axing ‘ineffective’ spending on marketing campaigns while lockdowns are in place.

“I am confident in Diageo’s long-term strategy and our ability to move quickly in this difficult environment,” Menezes said.

“We will continue to execute with discipline and invest prudently to ensure we are strongly positioned for a recovery in consumer demand. I am proud of the resilience and commitment of our people as they work hard to support our partners, customers and communities.”

 

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