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Diageo slashes 2020 expectations in wake of global volatility linked to coronavirus

Published:  30 January, 2020

Spirits giant Diageo has cut its sales expectations in global markets for the coming year, with the likelihood that the recent viral outbreak in China could further impact sales in 2020.

In its interim results released this morning, Diageo continues its trend of single digit growth for the second half of 2019 with reported net sales of £7.2 billion (+4.2%), which chief executive Ivan Menezes put down to “broad based organic net sales growth across regions and categories”.

Going into 2020 however, the Johnnie Walker and Tanqueray maker has tempered its sales expectations as it contends with increasing “uncertainty” in global trade.

For the full year, Diageo expects “organic net sales growth to be towards the lower end of our 4 to 6% mid-term guidance range", Menezes said.

This comes as the company faces increasing volatility in key markets such as India and travel retail. And these could be further squeezed by the outbreak in China as countries start restricting flights to prevent the spread of coronavirus.

Nigel Frith, senior market analyst at Ask Traders, said this could be the tip of the iceberg if the outbreak in China continues to spread. 

“Just two weeks since the first cases of coronavirus were announced and we are already staring to see the potential impact that the deadly bug is going to have on companies across the globe. China is also a key market for Diageo where it has retail outlets for Johnnie Walker and owns the brand Shi Jing Fang, sales there are expected to be eroded and significantly.

“After an impressive year for Diageo fundamentally in 2019, which was reflected in a 15% plus rally in the share price, 2020 is already looking set to be a more challenging year,” Frith said.

Earlier this week, the IWSR compared the outbreak from China’s Wuhan district to the 2003 SARS epidemic that primarily hit Southeast Asia, and which negatively impacted international travel.

Although the outbreaks are responsible for “relatively few deaths in a global context, the SARS virus did have a negative impact on international travel”, the IWSR said.

“Restrictions on travel during this Chinese New Year won’t have a big impact on the travel retail liquor sector,” as the holiday primarily sees mass transit within China itself, Alastair Smith, director at the IWSR, said.

“The real threat will be felt by international travel. Fear was a key motivator in decreased international travel during the SARS epidemic. What is difficult to judge right now is whether the coronavirus will be contained, in which case, the impact will likely be minimum. However, if consumer fear and uncertainty around the spread of the virus rises, we may be poised to see a repeat of something closer to the scale of 2003.”