Coronavirus: Drinks giant warns of profit hit as bars close

  • Published
  • comments
Johnnie Walker bottlesImage source, Getty Images

Drinks giant Diageo has warned its profits will fall this year, as bars and restaurants in China are forced to close due to the coronavirus outbreak.

The Guinness-owner said operating profits could be £140m-£200m lower than expected due to disruption across Asia.

It joins companies such as Apple and Danone in warning about the impact of the deadly virus.

Financial markets have also fallen sharply this week as fears of a pandemic grow.

The company - whose brands include Smirnoff, Johnnie Walker, Tanqueray and Gordon's gin - also warned on Wednesday that sales could be £225m-£325m lower than expected, depending on how long it took for the outbreak to end.

It said that bars and restaurants in China "have largely been closed and there has been a substantial reduction in banqueting... 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."

Events being postponed in several other Asian countries, especially South Korea, Japan and Thailand, as well as a reduction in conferences and banquets and a drop in tourism have all had an impact on people buying its products.

It added that the coronavirus outbreak had caused a "significant reduction" in people using airports, especially in Asia, hitting travel retail.

China is a very important market for Diageo. In the six months to 31 December, net sales in Greater China, which includes Taiwan, increased 24%.

There was double-digit growth in both Chinese white spirits and Scotch.

Investors are clearly nervous about the effects of the coronavirus - UK and US markets have in the last two days lost all the gains they have made so far this year - but have struggled to quantify exactly how big the problem will be, and how different sectors will be affected.

In the absence of information, they have sold the obvious shares - airlines, holiday operators and luxury goods companies.

Diageo's market update, which says its annual profit could be hit by £200m, will give them pause for thought about the wider implications.

The drinks company spells out what should be obvious - bars and restaurants across China, one of its biggest markets, have been closed.

Big events, another money-spinner for Diageo, have been cancelled across Asia.

It is a sobering - no pun intended - assessment of how corporate earnings will be affected.

Last year's giant stock market gains were a reflection of investors' assumptions that profits would stay high. That assumption now looks in grave doubt.

Most infections are in China, the original source of coronavirus, where more than 77,000 people have the disease and over 2,600 have died.

More than 1,200 cases have been confirmed in about 30 other countries and there have been more than 20 deaths. Italy reported four more deaths on Monday, raising the total there to seven.

There are 53 confirmed cases in the US, and officials are calling on Congress to approve billions of dollars to fund the response effort.