Diageo says the expected dip is founded on the evolving coronavirus pandemic that has disrupted consumption, with bars closing in some markets such as China and many cities in Europe.
East African Breweries Limited’s (EABL) #ticker:EABL British parent firm Diageo is warning of up to Sh41 billion or 2.7 percent hit in net sales for the year to June 2020 on disruption of business by the coronavirus outbreak.
Diageo, which has a presence in six continents, says the expected dip is founded on the evolving coronavirus pandemic that has disrupted consumption, with bars closing in some markets such as China and many cities in Europe.
Diageo says this could see organic net sales and organic operating profit drop by between £225 million (Sh28.6 billion) to £325 million (Sh41.2 billion) and £140 million (Sh17.8 billion) to £200 million (Sh25.3 billion) respectively, based on the timing and pace of recovery from the pandemic. “Bars and restaurants have largely been closed and there has been a substantial reduction in banqueting,” said Diageo in reference to Chinese market.
“As the majority of consumption is in the on-trade, we have seen significant disruption since the end of January which we expect to last at least into March.”
World Health Organisation (WHO) data showed there have been 153,517 confirmed cases globally causing 5,735 deaths as at last Sunday. China is the worst hit with 81,048 confirmed cases and 3,204 deaths.
Diageo has not given a breakdown of monetary impact per region or country. However, in Kenya where it also has operations, government pronouncements are pointing at disruption on business.
Mombasa County has for instance ordered for closure of night clubs for the next 30 days as a precaution after Kenya reported first coronavirus case on Friday last week. Confirmed cases have seen risen to three.
President Uhuru Kenyatta on Sunday also urged for avoidance of crowded places such as entertainment premises. He further called for minimal attendance of social gatherings such as weddings.
Diageo says the outbreak in several other Asian countries, especially South Korea, Japan and Thailand, has led to postponed events, reduction in conferences and banquets, and a drop in tourism which have all impacted on-trade consumption. Its organic net sales grew five percent to £12.2 billion (Sh1.54 trillion) in year to June 2018, giving it a 14 percent growth in net profit to £3.02 billion (Sh383 million).
Diageo had end of January projected more potential in the East African region where sales grew by 10 percent in the half year to December 2019, driven by strong growth in spirits and beer. EABL half year net profits rose nine percent to Sh7.2 billion with Kenyan market contributing 71 percent of overall sales in East African market.
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