World: Global pandemic makes Diageo take a GBP1.3 bln writedown in the year to June 30
The worlds largest spirits maker Diageo has taken a £1.3 bln writedown, becoming the latest drinks group to face impairment charges because of coronavirus, the Financial Times reported on August 3.
The London-based group, which produces Johnnie Walker whisky, Smirnoff vodka and Guinness stout, said the non-cash charges related to its businesses in India, Nigeria, Ethiopia and the Windsor whisky brand in South Korea, reflecting the impact of Covid-19 and challenging trading conditions.
The closure of drinking venues around the world hit Diageo harder than expected in the year to June, leading to an 8.4 per cent drop in organic net sales, compared with a 7.3 per cent fall expected by analysts.
Shares in the distiller were down 5 per cent to £27.25 by lunchtime on August 4.
Ivan Menezes, chief executive, said: We have taken decisive action through the second half of fiscal 2020, tightly managing our costs, reducing discretionary expenditure and reallocating resources across the group.
Pre-tax profit dropped 51.8 per cent to £2 bln on £11.8 bln of net sales, down from £12.9 bln the previous year. The company said it had paused its return of capital programmes and put in place an additional £2.5 bln credit facility to help deal with lower cash flow, but said it would maintain its final dividend at 42.47p a share.
Like many other companies, Diageo said it could not yet indicate its outlook for the coming year because of uncertainty over coronavirus.
The sales declines were especially acute in some African countries: Nigerian net sales fell 20 per cent, while in South Africa, which has twice banned alcohol sales during the pandemic, net sales were down 25 per cent.
Other alcoholic drinks makers have also taken impairment charges in the pandemic. The worlds largest brewer, Anheuser-Busch InBev, took a $2.5 bln writedown on the value of its operations last week, relating to the companys African units acquired with the purchase of rival SABMiller four years ago.
Rival Heineken, meanwhile, wrote down the value of its assets by 550 mln.
At Diageo there were exceptions to the lower sales: net sales of tequila in North America were up 36 per cent, reflecting the fast-rising popularity of the Don Julio and Casamigos brands, while in Europe drinkers turned to rum, where sales rose 3 per cent, driven by the Captain Morgan brand.
Diageos rival distillers have struck a less gloomy note in recent trading updates: Frances Pernod Ricard, which owns Jameson Irish whiskey and Beefeater gin, last month upgraded its expectations for the full year, saying profit from recurring operations was expected to drop 15 per cent rather than 20 per cent, as forecast early in the pandemic.
The smaller French group, Rémy Cointreau, also said last month that first-half sales would fall less than expected as people making cocktails at home helped compensate for a collapse in sales through bars and airports.
E-malt.com, the global information source for the brewing and malting industry professionals. The bi-weekly E-malt.com Newsletters feature latest industry news, statistics in graphs and tables, world barley and malt prices, and other relevant information. Click here to get full access to E-malt.com. If you are a Castle Malting client, you can get free access to E-malt.com website and publications. Contact us for more information at email@example.com .