Diageo Withdraws Forecast, Halts Buyback Programme

By Steve Wynne-Jones
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Diageo Withdraws Forecast, Halts Buyback Programme

Diageo plc, the world's largest spirits maker, has abandoned its annual forecast for sales and profit growth, and suspended its £4.5 billion (€5.14 billion) share buyback programme in response to the coronavirus pandemic.

The Johnnie Walker whisky maker is the latest company to pull its guidance as the closure of bars and restaurants around the world due to lockdowns imposed by governments hit its sales.

Market Shutdown

Production facilities in many countries, including India and in its key markets of Africa, are closed, while in the United States - its biggest market - the closure of bars and restaurants in most states was impacting about 20% of its business there, the company said.

Its shares were, however, up 2.4% in early trade after the company said it would pay its interim dividend in April as planned.

Diageo also said it was seeing a small pickup in sales in retail stores in the United States and Europe in recent weeks, as more people drink at home.


Consumption in mainland China was slowly recovering with the gradual opening of bars and restaurants, Diageo said in a statement, though global travel retail spending continued to be subdued.

Pace Of Recovery

The company in February had estimated that the spread of coronavirus in greater China and the Asia Pacific region could knock up to $260 million off its profit in 2020.

"Given the global nature of the COVID-19 pandemic, and the uncertainty around the severity and duration of the impact across multiple markets, we are not in a position to accurately assess the impact of this on our future financial performance," the Tanqueray gin maker said.

The company had estimated annual underlying net sales growth to be about 2% and earnings before interest to be flat to up 2%, according to analysts.


'Not A Surprise'

"(Diageo's) withdrawal of guidance for 2020 (is) not a surprise," Jefferies analyst Edward Mundy wrote in a note.

"Debate will turn to pace of recovery in 2021, which we think is unlikely to be v-shaped given some continued impact on consumption patterns...and destocking risk"

Diageo said it was stopping advertising and promotion "that would not be effective in the current environment" and deferring discretionary capital expenditure projects in an effort to shore up cash.

It recently completed a £1.9 billion euro and sterling bond issue and said it had committed bank loans of £2.8 billion.


Diageo also said it was suspending its three-year multi-phase £4.5 billion shareholder returns programme for the rest of the year. In its first phase that ended on Jan. 31, the company had paid out £1.25 billion in the form of buybacks.

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