Catch the latest updates from ASX Australian Market 2020!

The FTSE-100 index was up by 1.16 per cent and was trading at 6,147.22 on 12^th June 2020 (at the time of writing before the market close, 1:05 PM GMT). The markets across the globe were affected by the cues from the Fed and resurgence of coronavirus cases.

The critical points to watch out are stated below.

• As per the Office for National Statistics, the British economy contracted by 20.4 per cent in April, due to the lockdown scenario.
• Bank of England stated that the total value of outstanding residential mortgage loan was GBP 1,509 billion at the end of Q1 2020, which was up by 3.9 per cent year on year.
• The UK house market hit bottom in May 2020 as prices were most low in a decade.
• The Fed stated that the US debt was up by 14.3 per cent in the first-quarter of 2020, which was most since 2011.

Given erratic worldwide lockdown, we will analyze the two companies from the beverage sector as a large portion of the revenue is derived from out-of-home sales - Diageo (LON:DGE) and Coca-Cola HBC AG (LON:CCH). As on 12^th June 2020 (before the market close at GMT 1.10 PM), Diageo PLC’s and Coca-Cola HBC AG’s shares were up by 0.47 per cent and 1.64 per cent, respectively, from its last day close.

Diageo PLC – Issued debt in the US and European market to meet liquidity needs

Diageo PLC is a global leader in the production and marketing of alcoholic beverages. The Company was incorporated in 1886 and headquartered in London, UK.

Sales Growth in H1 FY20 Period

(Source: Company Website)

Sales growth by category - H1 FY20

(Source: Company Website)

Business Performance (as on 9^th April 2020)

• The closure of economies and restriction on travel has affected Diageo’s Travel Retail business worldwide which was earlier limited to Greater China.
• The on-trade channels (sale in bar and restaurant) in the US and Europe, which accounts for 20 per cent and 50 per cent sales in the respective region declined as bars and restaurants remained closed. In India and South Africa both on-trade and off-trade channels closed due to the countrywide lockdown in full April in India and for three-weeks in South Africa. On-trade sale was also impacted in Latin America and the Caribbean following government restrictions. Off-trade sales picked up in a few countries; however, the timeline is unpredictable.

Debt Issuance

• On 24^th March 2020, Diageo PLC issued €750 million bonds with a coupon rate of 1.875 per cent due in 2027, €1 billion bonds with a coupon rate of 2.50 due in 2032 and GBP 300 million bonds with a coupon rate of 2.875 per cent due in 2029.
• On 29^th April 2020, the Company issued three dollar-denominated fixed-rate bonds totaling USD 2.5 billion. The bonds issued included USD 750 million at 1.375 per cent, USD 1 billion at 2.000 per cent and USD 750 million at 2.125 per cent with maturity due in 2025, 2030 and 2032, respectively.

Change in Diageo’s Board

• Lord Davies of Abersoch, a Non-Executive Director, will step down from Diageo’s board on 30th June 2020
• Sir John Manzoni will be appointed as a Non-Executive Director from 1st October 2020.

Covid-19 assistance

• Company has donated alcohol, which will be sufficient to make around 8 million 250 ml sanitizer bottles for healthcare workers around the world.

Share Price Performance Anlysis

Daily Chart as on 12^th June 2020, before the market closed (Source: Refinitiv, Thomson Reuters)

The share price of the Diageo PLC was trading at GBX 2,773.0 on 12^th June 2020 (before the market close at 9.02 AM GMT) and was down by 0.04 per cent from the previous day closing price. The company’s stock registered a 52 week High and Low of GBX 3,633.50 and GBX 2,050.60, respectively. The total outstanding market capitalization of the company was around GBP 64.84 billion.

Business Outlook

Company has withdrawn its financial guidance because of the lack of assessment of economic activity in its operational markets. But once the out-of-home consumption resumes it will help to bridge the earnings gap.

Coca-Cola HBC AG - Opening of out-of-home post lockdown will be pivotal for the Company’s future business performance.

Coca-Cola HBC AG (LON:CCH) is a leading bottler on the brands of Coca Cola Company. The Company operates in 28 countries and has segregated the market underdeveloped, developing and emerging markets. The Company offers a wide range of products such as juice, coffee, energy drinks and non-alcoholic beverages in these markets.

Market wise revenue and sales volume analysis – 1Q FY2020 (for the three months period ended 27^th March 2020)

As on 7^th May 2020, the Company reported a business update and the highlights were:

Developed Markets – The revenue declined by 7.2 per cent (based on FX neutral), and the sales volume declined by 5.5 per cent, respectively. In January and February, the business was in line with the Company’s expectation; however, by the end of March, the impact of limited movement of consumers started unfolding on the Company’s business. Out-of-home sales contribute a significant portion of the total sales in the developed market.

Developing Markets – The revenue declined by 2.9 per cent (based on FX neutral); however, the volume grew by 1.8 per cent. The out-of-home sale contributes 30-40 per cent of the total sales. The lockdown dragged the sales volume by 29.3 per cent in April 2020.

Emerging Markets – Both revenue and sales volume were up by 4.8 per cent (based on FX neutral) and 8.1 per cent in Q1 FY20. The countries in this segment entered into lockdown much later than the countries in the other parts. However, the sales declined by 19.6 per cent in April.

Business Performance – FY2019

(Source: Company Website)

Product-wise analysis

Among the full range of beverage offerings, energy-drinks led the pack growing 22.2 per cent followed by low and no-sugar drinks 7.8 per cent in 1Q FY2020. The juice and tea category declined by 3.7 per cent and 12.5 per cent respectively in 1Q FY2020.

Balance Sheet Strength

• At the end of April, the Company had cash and time deposits of €1.4 billion. Even after debt repayment and payout of proposed ordinary dividend company will be left with €0.6 billion for investment and operational activities.
• The Company has an undrawn credit facility of €0.8 billion and also has €0.9 billion available of its €1 billion commercial paper facility.

Recent event updates

• On April 2020, the Company’s business was non-operational in all its 28 markets except Belarus.
• On July 2020, the Company’s board has proposed a dividend payout of €0.62 per share to its shareholder.

Community service amid COVID-19

• The Company donated 130,000 litres of beverages in Nigeria and 600,000 drinks to NGOs and hospitals in Italy.
• Company is using its 3D-printing capabilities to manufacture face masks and sanitizer bottle in Russia.

Share Price Performance Analysis

Daily Chart as on 12^th June 2020, before the market closed (Source: Refinitiv, Thomson Reuters)

The share price of the Coca Cola HBC AG was trading at GBX 2,015.0 on 12^th June 2020 (before the market close at 9.02 AM GMT) and was down by 0.10 per cent from the previous day closing price. The company has 52 weeks High and Low of GBX 2,950.00 and GBX 1,393.10, respectively. The total outstanding market capitalization of the company was around GBP 7.38 billion.

Business Outlook

The Company refrained from providing any performance guidance in the wake of the pandemic. However, the opening of bars and restaurants will be a crucial driver amid uncertainty.