Scotch whisky giant Diageo to reveal impact of lockdowns and tariffs on bottom line

Drinks giant Diageo, Scotland’s largest whisky producer, will this week reveal the impact that lockdowns, Brexit and higher US Scotch tariffs have had on sales as it pours out its first-half results.
Diageo's vast portfolio includes Johnnie Walker whisky, Guinness stout and Smirnoff vodka.Diageo's vast portfolio includes Johnnie Walker whisky, Guinness stout and Smirnoff vodka.
Diageo's vast portfolio includes Johnnie Walker whisky, Guinness stout and Smirnoff vodka.

The group, whose vast portfolio includes Johnnie Walker whisky, Guinness stout and Smirnoff vodka, has seen the wind taken out of its share-price sails over the past 12 months amid the closure of pubs, clubs, restaurants and hotels that would have otherwise sold its wares.

In August, the firm revealed that operating profits had fallen 47 per cent to £2.1 billion in the year to June 30, as it was also hit by a £1.3bn write-down across its operations in India, Nigeria, Ethiopia and Korea. Total sales were down 9 per cent to £11.8bn for the year despite being boosted by growth in sales in North America.

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This week’s results, due to be released on Thursday, will let investors know how hard the second wave of coronavirus has hit sales.

William Ryder, equity analyst at financial services firm Hargreaves Landsown, said: “It feels like a long time since we last heard from Diageo.

“The distiller has had a tough time since the pandemic forced pubs and bars around the world to close their doors.

“Last year sales took a predictable hit. Diageo also wrote down the value of some assets in India, Korea, Nigeria and Ethiopia by over £1.3bn.

“Early trading in Diageo’s 2021 financial year was positive, but further waves of coronavirus have since forced more lockdowns. This is likely to have damaged sales again, and this will be an important number to focus on. Distillery costs are hard to flex quickly, but any progress here will also be welcome.”

He added: “While we don’t expect growth from Diageo… it’s important that the group retains the ability to spring back into action quickly.

“If worldwide vaccine rollouts are as successful, as hoped, the group could have a strong summer. Any information on brand strength and retail sales will help gauge this.”

Russ Mould, investment director at AJ Bell, said: “When analysts look at these interim results, they will home in on three headline figures.

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“The first is organic growth, so analysts can check out underlying sales growth, excluding currency movements and acquisitions, such as last year’s $610 million swoop for actor Ryan Reynolds’ Aviation American Gin.

“In the fiscal year that ended in June 2020, organic sales were down 8.4 per cent and volumes were down 11.2 per cent, thanks largely to the pandemic.

“The second is headline pre-tax profit. Analysts are expecting a big bounce in the full-year figure to June 2021, from £2bn to £3.4bn.

“Finally, attention will switch to the dividend. Diageo scrapped its share buyback programme last year as the pandemic hit home and profits came under pressure. The company did however squeeze out a 2 per cent increase in its dividend for the last fiscal year to 69.88p and that maintained a streak of growth in the annual payment which began in 1999.”

“Shareholders and analysts will also look for any comments on Brexit from CEO Ivan Menezes.” Mould added.

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