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UPDATE 3-Diageo full-year sales plunge as demand in bars, restaurants dries up

Tue, 4th Aug 2020 07:35

* Asia, LatAm, Europe post double-digit declines

* Takes 1.3 bln pound non-cash charge for some businesses

* Outlook still abandoned, capital returns programme

* Shares down 6.2%; biggest loser on FTSE
(Adds analyst comment, details on impairment charge)

By Siddharth Cavale

Aug 4 (Reuters) - 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

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

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)
(Reporting by Siddharth Cavale in Bengaluru; Editing by Bernard
Orr, Saumyadeb Chakrabarty and David Evans)

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