The closing down of bars and restaurants in China because of the spread of the coronavirus will have a negative impact on the profits for the entire year, warned drinks giant Diageo.
The virus related disruptions across Asia will have an impact of between £140m-£200m in the operating profits, the company said.
Diageo is the latest global company to join the ranks of Apple and Danone to issue profit warnings because of the deadly virus outbreak.
The fears of the outbreak taking the form of an pandemic this week has also brought down global financial markets.
The total revenue from sale for the current year could be lower by £225m-£325m than expected depending on the length of time that is required for the outbreak to end, warned the company which is the owner of drinks brands such as Smirnoff, Johnnie Walker, Tanqueray and Gordon’s gin.
The company said in a statement the bars and restaurants in China “have largely been closed and there has been a substantial reduction in banqueting… We have seen significant disruption since the end of January which we expect to last at least into March. Thereafter, we expect a gradual improvement with consumption returning to normal levels towards the end of fiscal 2020.”
Organizers in a number of other Asian countries have also postponed events – particularly in South Korea, Japan and Thailand. The company also noted a significant drop in the number of conferences and banquets in the region as well as a sharp drop in tourism have all resulted in a drop in demand and sale for the company’s products.
There has also been a “significant reduction” in number of people using airports, particularly in Asia because of the coronavirus outbreak which has also hit travel related retrial sale of the company, it added.
China is one of the most important markets for Diageo as the company reported a 24 per cent growth in net sale s in the Greater China region, which includes Taiwan, in the six months to December 31. The company had notched up growth in both Chinese white spirits and Scotch in double digits for both.
The potential impact of the virus outbreak has clearly spooked investors which is evident in both the UK and US markets giving up their gains made so far this year in just the last two days. However markets have still not been able to put a number on the possible economic hit on to the global economy, financial markets as well as what industries will be affected because of the virus outbreak.
Share of some of the very obvious industries such as airlines, holiday operators and luxury goods have been sold off by investors in the absence of accurate information.
However investors will have something new to think about following the profit warning issued by Diageo – which is anticipating a drop in its annual profits for 2020 by about £200m.
(Adapted from BBC.com)