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Diageo issues profit warning as coronavirus hits consumption

By Hugh Wilson

Drinks maker grappling with on-trade slump in China and Asia

UK drinks maker Diageo has warned that the coronavirus outbreak could wipe up to £200m ($259m, €238m) off profits in 2020.

The company behind brands like Guiness beer and Johnny Walker whisky says the estimate is based on likely effects of the crisis in China and the Asia Pacific region and doesn’t take into account disruption in other global markets.

In a trading update the company said that bars and restaurants in the Greater China region have been largely 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,” it said.

Diageo sees a similar pattern emerging in other Asian countries, and especially South Korea, Thailand and Japan. In these countries the postponement or cancellation of conferences and events, added to a slump in tourism, have all impacted on-trade consumption, the company said.

The company also noted a reduction in international flights, reducing sales both in airports and through onboard retail.

Diageo expects the situation in China to improve after March, with consumption returning to normal levels towards the end of fiscal 2020. But it admits that the “situation is dynamic and continues to evolve” and that the timing and pace of recovery is currently hard to predict.

FURTHER READING: Diageo cuts 2020 sales outlook as global trade picture remains cloudy

FURTHER READING: FTSE hits lowest in a year as coronavirus impact continues

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