Coronavirus to wipe up to £200 million off profits at Scotland's largest whisky producer
In a trading update, the spirits and beer giant said demand has been knocked across greater China, where the outbreak started, as bars and restaurants have been closed, with sales across the rest of Asia Pacific also lower amid a fall in conferences and banquets.
Sales are also being impacted as the spread of the potentially fatal Covid-19 virus has led to reduced international passenger traffic.
The UK group, which has a vast portfolio including the likes of Gordon’s gin, Captain Morgan rum and Guinness stout, is bracing for 2020 net sales to be knocked by between £225m and £325m due to the virus, which is set to impact operating profit by £140m to £200m this year.
Diageo – Scotland’s largest whisky producer – said it has seen “significant” disruption since the end of January, which it expects to last at least into March.
But the firm is expecting a gradual improvement in sales, returning to normal levels towards the end of its financial year in June.
It told 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.
“It is difficult to predict the duration and extent of any further spread of the Covid-19 outbreak both in and outside of Asia.”
The update comes just weeks after Diageo reported a “softening to flat” performance for its Scotch division and warned that it is not immune to “ongoing uncertainty in the global trade environment”. Reporting its interim results at the end of January, the firm said its single malts portfolio, Buchanan’s and Johnnie Walker reserve grew in the period but this was offset by Johnnie Walker Black Label and Johnnie Walker Red Label which softened globally.
Scotch represents just over a quarter of Diageo’s net sales. The group warned at the time that full-year sales were expected to be at the lower end of forecasts as it was affected by volatility in global markets.
However, the London-listed firm hailed a “good” half-year’s trading performance overall as it said net sales increased by 4.2 per cent to £7.2 billion for the six-month period. It added that operating profit nudged up 0.5 per cent to £2.4bn as organic growth was offset by unfavourable exchange rates.
In October, the US government introduced 25 per cent tariffs on single malt whiskies but Diageo said this move had not had a significant impact on its trading performance. The group expects net sales growth for the year to be towards the lower end of its 4 per cent to 6 per cent range.