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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  Diageo plc    DGE   GB0002374006

DIAGEO PLC

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Diageo full-year sales plunge as demand in bars, restaurants dries up

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08/04/2020 | 02:58am EDT
FILE PHOTO: A bartender takes a bottle of Johnnie Walker whisky at Barmaglot bar in Almaty

Diageo Plc, the world's largest spirits maker, took a 1.3 billion pound writedown as it reported a bigger than expected decline in underlying net sales on Tuesday as demand for its whisky, vodka and gin fell in nearly all markets.

The Johnnie Walker whisky maker took the 1.3 billion pound non-cash writedown related to its businesses in India, Nigeria, Ethiopia and the Windsor whisky brand in South Korea, blaming challenging trading conditions due to the COVID-19 pandemic.

On Tuesday, the company reported an 8.4% drop in organic sales for the year ended June 30, larger than the 7.3% fall analysts had expected, company supplied estimates showed.

This marks the company's worst annual sales performance in more than a decade, according to Bernstein analysts.

Diageo shares were down 6.2% in early trading and was the biggest loser on the FTSE. The stock is down nearly 10% this year, better than the FTSE's 20% decline over the same period.

By region, organic sales in Asia fell the most, dropping 16% due to the impact of coronavirus-related closures of alcohol outlets and bars in India and Thailand, while in China demand was hit by the absence of the Chinese New Year.

The company's Latin America, Africa and Europe and Turkey markets also posted double-digit falls in sales, mainly due to disruptions to supply chains and fewer social occasions due to the pandemic.

North America was the only bright spot, with sales rising 2%, reflecting strong demand for tequilas and ready-to-drink beverages at supermarkets and alcohol stores, the company said.

Chief Financial Officer Kathryn Mikells said the strong results in North America, its biggest market by revenue, was because 80% of Diageo's sales came from retail stores, in contrast to other markets, where bars and restaurants make up most of the sales.

The company, which also makes Tanqueray Gin, Smirnoff Vodka and a wide range of scotch whiskey, said it was still unable to provide specific outlook for the year, after abandoning a full-year forecast in April. Its 4.5 billion pound ($5.9 billion) capital returns programme remains suspended.

"The hit to earnings should be short lived provided the global economy doesn't take too long to recover," William Ryder, equity analyst at Hargreaves Lansdown said. "We think the group will continue to do well long term, but management will have to focus more on debt reduction than they probably would have liked."

The company also said it would keep paying a dividend, which Liberum analyst Nico Von Stackelberg called a "positive sign".

After a tough second half of the year "we should see sequential improvements (in the business) from here," he said in a note.

Diageo's business outlook was in contrast to French spirits makers Pernod Ricard and Remy Cointreau , which last month said the pandemic would not hit their full-year forecasts as strongly as initially feared.

Diageo's impairment charge follows those of other alcoholic beverage makers, AB InBev and Heineken. While AB Inbev took a $2.5 billion writedown related to its African operations last week, Heineken announced a nearly 550 million euro writedown on Monday.

($1 = 0.7633 pounds)

By Siddharth Cavale

Stocks mentioned in the article
ChangeLast1st jan.
DIAGEO PLC -0.92% 2585 Delayed Quote.-18.48%
DOW JONES AFRICA TITANS 50 INDEX -0.09% 489.75 Delayed Quote.-8.82%
HARGREAVES LANSDOWN PLC 0.24% 1634.9837 Delayed Quote.-15.79%
HEINEKEN HOLDING N.V. 0.51% 69.3 Delayed Quote.-20.20%
HEINEKEN N.V. 0.31% 78.62 Delayed Quote.-17.45%
PERNOD RICARD -0.25% 139.65 Real-time Quote.-12.17%
S&P AFRICA 40 INDEX -0.07% 163.03 Delayed Quote.-5.55%
US DOLLAR / TURKISH LIRA (USD/TRY) 0.28% 7.5671 Delayed Quote.25.86%
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Financials
Sales 2021 11 793 M 15 315 M 15 315 M
Net income 2021 2 628 M 3 412 M 3 412 M
Net Debt 2021 13 149 M 17 076 M 17 076 M
P/E ratio 2021 23,3x
Yield 2021 2,68%
Capitalization 60 933 M 78 942 M 79 128 M
EV / Sales 2021 6,28x
EV / Sales 2022 5,89x
Nbr of Employees 27 788
Free-Float 90,7%
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Technical analysis trends DIAGEO PLC
Short TermMid-TermLong Term
TrendsNeutralNeutralNeutral
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 26
Average target price 2 831,10 GBX
Last Close Price 2 609,00 GBX
Spread / Highest target 39,9%
Spread / Average Target 8,51%
Spread / Lowest Target -17,6%
EPS Revisions
Managers
NameTitle
Ivan M. Menezes Chief Executive Officer & Executive Director
Javier Ferrán Larraz Chairman
Kathryn A. Mikells Chief Financial Officer & Executive Director
Kwon Ping Ho Independent Non-Executive Director
Alan James Harris Stewart Independent Non-Executive Director
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RÉMY COINTREAU37.63%8 882
FEVERTREE DRINKS PLC14.67%3 623