Asia: Spread of coronavirus could impact 2020 profit - Diageo

Diageo, the world’s biggest spirits company, said on February 26 the spread of coronavirus in greater China and the Asia Pacific region could knock up to 200 million pounds off its profit in 2020.

The company said that in China, bars and restaurants have largely been closed and there has been a substantial reduction in banqueting. Trading has been significantly disrupted since the end of January and the group expects this to last at least into March.

After that Diageo anticipates a gradual improvement with consumption returning to normal levels towards the end of fiscal 2020.

The company estimated the negative impact of the virus outbreak on the group’s organic net sales and organic operating profit to be between 225-325 million pounds and 140-200 million pounds respectively.

It cautioned that these ranges exclude any impact of coronavirus on its other markets beyond China and Asia Pacific.

Shares in Diageo were down 2.3% at 0846 GMT.

When the group published first half results on Jan. 30, it had commented on the expectation of an impact from coronavirus but was not able to quantify it at the time.

Rival Remy Cointreau warned last month of the potential impact on demand for its premium cognac in China, while Pernod Ricard said earlier in February that shuttered Chinese clubs and bars would have a severe impact on its current quarter.

China’s National Health Commission reported another 406 new infections on Wednesday, down from 508 a day earlier and bringing the total number of confirmed cases in mainland China to 78,064. Its death toll rose by 52 to 2,715.

The United States has warned of an inevitable pandemic and outbreaks in Italy and Iran have spread to more countries.

In the past four trading sessions about $3 trillion has been wiped off the value of the MSCI World, a market cap weighted stock market index of 1,644 stocks globally.

Diageo 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 recovery of passenger traffic is assumed to be gradual, resulting in 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 added.

24 February, 2020