Coronavirus could hit Diageo profits by up to $258m

In a trading update on February 26, Diageo  said: “We estimate the negative impact in fiscal 2020, on the group’s organic net sales and organic operating profit, to be in a range of £225m ($290m) to £325m ($419m) and £140m ($181m) to £200m ($258m), 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. We will continue to monitor the situation closely.​

“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.”​

Travel Retail, on-trade and events​

The primary areas affected for Diageo are the closure of bars and restaurants in Greater China; as well as other impacted countries in Asia Pacific.

“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.”​

South Korea, Japan and Thailand have also seen a number of events postponed, a reduction in conferences and banquets, and a drop in tourism – all of which have impacted on-trade consumption.

Travel Retail has also suffered with a ‘significant reduction’ in international passenger traffic, particularly in Asia.

“​As the situation continues to unfold, our primary concern remains the welfare of our colleagues, their families and their local communities and we will continue to provide all support possible,”​ says Diageo. “Authorities in China and in other impacted countries have taken strong and decisive action and continue to work tirelessly to contain the spread of the virus.​

“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.  ​

“It is difficult to predict the duration and extent of any further spread of the COVID-19 outbreak both in and outside of Asia. Based on current information we have made assumptions to estimate the fiscal 2020 impact on the performance of the following businesses.”​

Diageo’s brands include Guinness, Baileys, Smirnoff, Bulleit Bourbon, Captain Morgan, Johnnie Walker and Crown Royal.