TIDMDGE
RNS Number : 2851J
Diageo PLC
09 April 2020
Trading update - Impact of COVID-19 outbreak
On 26 February 2020, we updated on the impact of COVID-19 in
Greater China, certain other Asia Pacific markets and Travel
Retail, mainly in the Asia Pacific region. We are now providing
additional information due to the spread of COVID-19 to most of our
other markets. Widespread containment actions put in place by
governments across the globe in March, including the closure of
bars and restaurants, are having a significant impact on the
performance of our business.
Our people and our stakeholders
The safety of our people remains our highest priority. We have
stringent safety protocols across all sites, including heightened
sanitation measures and restrictions on movement to and from our
sites and all employees who can work from home are doing so.
We are working closely with our suppliers and customers to
minimise business disruption. We are donating alcohol to make more
than eight million bottles of sanitiser for frontline healthcare
workers around the world, while providing support packages for
bartenders and others impacted by COVID-19 related closures. We
will continue to actively help our industry and communities.
Current trading environment
Social distancing measures, including the closure of the
on-trade channels, have been introduced in most of our markets. We
are tracking changes in consumer behaviour during this time and
adjusting our plans and resources in response.
In mainland China, we are beginning to see a very slow return of
on-trade consumption, as restaurants and bars have started to
gradually re-open. The significant impact on global Travel Retail,
referred to in our 26 February update, has extended beyond Asia
Pacific into other markets in March due to a steep drop in
passenger numbers, as well as new travel restrictions imposed by
many countries.
In North America, where the on-trade channel accounts for
approximately 20% of US Spirits' net sales, most States closed bars
and restaurants in March. In Europe, there have been significant
closures of on-trade premises in most countries. This channel
accounts for approximately 50% of Europe net sales, although the
size of the on-trade channel varies significantly between
individual countries. In both of these regions, we have seen some
pick-up in the off-trade channel (retail stores) in recent weeks,
although it is unclear whether this will be sustained.
In India, a nationwide lockdown has closed the on and off-trade
channels, as well as production facilities across most industries,
including United Spirits' supply operations, for an initial period
of three weeks until 14 April 2020.
In our main markets in Africa, the on-trade channels have also
been impacted, and we have closed two of our production sites in
Nigeria. South Africa has imposed a nationwide lockdown for an
initial period of three weeks until 16 April 2020. Governments have
also placed restrictions on the on-trade in a number of countries
in Latin America and the Caribbean.
Cost mitigation and cash management
In the short term, we are reducing discretionary expenditure and
reallocating resources across the group. As part of these
mitigation measures, we are stopping A&P spend that will not be
effective in the current environment. We are also tightly managing
working capital and deferring discretionary capital expenditure
projects. We are providing an appropriate level of support to our
key suppliers and customers to ensure we are strongly positioned
for a recovery in consumer demand.
Financial guidance
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. We are
therefore withdrawing our guidance on group organic net sales
growth and organic operating profit growth for fiscal 2020.
Balance sheet and liquidity
We have a strong balance sheet and at 31 December 2019, our
adjusted net debt to EBITDA ratio was 2.8 times. There are no
financial covenants attached to our outstanding short or long-term
debt.
We are taking actions to ensure we maintain good liquidity
including, as previously announced on 24 March 2020, completing the
issuance of new euro and sterling bonds totalling approximately
GBP1.9 billion. We also have available the committed bank
facilities of GBP2.8 billion, which are subject to a single
financial covenant of a minimum of two times interest cover.
[1]
Returns to shareholders
On 30 January 2020, we announced an interim dividend of 27.41
pence per share to be paid to holders of ordinary shares and ADRs
on the register as of 28 February 2020. The ex-dividend date was 27
February 2020 and the interim dividend will be paid to ordinary
shareholders as scheduled on 9 April 2020 and to US ADR holders on
14 April 2020.
On 25 July 2019, the Board approved a return of capital
programme with up to GBP4.5 billion to be returned to shareholders
over the three-year period to 30 June 2022. Under the first phase
of the programme, which ended on 31 January 2020, we returned
GBP1.25 billion via share buybacks. We have not initiated the next
phase of the three-year programme and we will not do so during the
remainder of fiscal 2020.
Ivan Menezes, Chief Executive, said:
"During this challenging time, our top priority is to safeguard
the health and well-being of our people, while taking necessary
action to protect our business. I am confident in Diageo's
long-term strategy and our ability to move quickly in this
difficult environment. We will continue to execute with discipline
and invest prudently to ensure we are strongly positioned for a
recovery in consumer demand. I am proud of the resilience and
commitment of our people as they work hard to support our partners,
customers and communities."
For further information please contact:
Investor relations:
Vinod Rao +44 (0) 7834 805 733
Andy Ryan +44 (0) 7803 854 842
Lucinda Baker +44 (0) 7974 375 550
Media relations:
Dominic Redfearn +44 (0) 7971 977 759
Jessica Rouleau +44 (0) 7925 642 561
press@diageo.com
About Diageo
Diageo is a global leader in beverage alcohol with an
outstanding collection of brands across spirits and beer
categories. These brands include Johnnie Walker, Crown Royal, J B,
Buchanan's and Windsor whiskies, Smirnoff, Cîroc and Ketel One
vodkas, Captain Morgan, Baileys, Don Julio, Tanqueray and
Guinness.
Diageo is a global company, and our products are sold in more
than 180 countries around the world. The company is listed on both
the London Stock Exchange (DGE) and the New York Stock Exchange
(DEO).
Celebrating life, every day, everywhere
Cautionary statement concerning forward-looking statements
This document contains 'forward-looking' statements. These
statements can be identified by the fact that they do not relate
only to historical or current facts. In particular, forward-looking
statements include all statements that express forecasts,
expectations, plans, outlook, objectives and projections with
respect to future matters, including trends in results of
operations, margins, growth rates, overall market trends, the
impact of changes in interest or exchange rates, the availability
or cost of financing to Diageo, anticipated cost savings or
synergies, expected investments, the completion of any strategic
transactions or restructuring programmes, anticipated tax rates,
changes in the international tax environment, expected cash
payments, outcomes of litigation or regulatory enquiries,
anticipated changes in the value of assets and liabilities related
to pension schemes and general economic conditions. By their
nature, forward-looking statements involve risk and uncertainty
because they relate to events and depend on circumstances that will
occur in the future. There are a number of factors that could cause
actual results and developments to differ materially from those
expressed or implied by these forward-looking statements, including
factors that are outside Diageo's control. Any forward-looking
statements made by or on behalf of Diageo speak only as of the date
they are made. Diageo does not undertake to update forward-looking
statements to reflect any changes in Diageo's expectations with
regard thereto or any changes in events, conditions or
circumstances on which any such statement is based.
An explanation of non-GAAP measures, including organic
movements, is set out on page 49 of Diageo's interim results for
the six months ended 31 December 2019 published on 30 January
2020.
Diageo plc LEI: 213800ZVIELEA55JMJ32
[1] Defined as the ratio of operating profit before exceptional
items, aggregated with share of after tax results of associates and
joint ventures, to net interest.
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END
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