British Alcoholic Beverage Major Diageo Plc Issues Profit Warning Amidst Coronavirus Scare

  • Feb 28, 2020 GMT
  • Team Kalkine
British Alcoholic Beverage Major Diageo Plc Issues Profit Warning Amidst Coronavirus Scare

In the list of British corporates to have been adversely affected by the coronavirus outbreak a new name has been added on Wednesday, 26th February 2020. Diageo Plc, the alcoholic beverage major of the country, has issued a profit warning that its organic operating profit could take a hit of nearly £200 million this year as the coronavirus scare continues to batter its business in China. The profit warning by the world’s largest alcoholic beverage marker was accompanied by a sharp fall across the world’s major stock indices amidst scare that the virus could be spreading outside of China. The company is, however, hopeful that things will be normalised in China by June 2020 when it releases its full-year results, notwithstanding the fact that no such confirmation has come from the Chinese health authorities.

Several other British companies in the recent past have issued profits warnings due to this virus scare. Earthmoving equipment manufacturer JCB had issued a warning earlier this month due to this scare as the company currently sources as much as 25 per cent of its components from China and with China currently in virtual lockdown its production in seriously being impacted in the United Kingdom. Other than that, several other manufacturing and trading companies which source a significant amount of their inputs from China are also being severely impacted. The restriction on movement of personnel from China to the United Kingdom and vice versa has also been having a limiting impact on commerce between the two countries as several service sector companies also have significant exposures to China.

The company in recent years has been performing well; in the six-month period ending on 31 December 2019 the company has reported a revenue of £7.2 billion which was a growth of 4.2 per cent and a profit figure of £2.4 billion, registering a growth of 0.5 per cent on account of adverse exchange rate movements, exceptional items and M&A activities. The company at the time of the release of the results had given an organic net sales growth guidance of 4 per cent -6 per cent for the full year of 2020. But now after the virus outbreak just after the results release, it is highly likely the company would not be able to meet that guided figure.

Outlook for the full year 2020

As per the company's own assessment, the expected hit to organic operating profit out of the virus outbreak will be in the region of £150 million - £200 million which, given its large net revenue base of exceeding £12 billion and an operating profit figure of £4.0 billion (in FY2019), should not have a major impact on its fortunes for the financial year. It is very likely that the company will register a flat or close to flat growth in net profits for the full year. The company, however, may be misreading the situation altogether as it estimates that the outbreak will be contained by June 2020, which is not certain and could extend for a longer period of time, in which case the hit to the company's profitability will further increase.

Diageo Plc Stock Trading Performance at The London Stock Exchange

Source – Thomson Reuters

On 28 February 2020 at the time of writing of this report the company’s shares on the London Stock Exchange were trading at GBX 2,759.80.

The shares of the company during the past 52 weeks of trading at the London Stock Exchange have registered a 52-week high of GBX 3,633.50 while also registering a 52-week low of GBX 2,682.00. The company had a market capitalisation of £65.90 billion on the London Stock Exchange at the time of writing this report on 28 February 2020.

The stock's traded volume at the above date and time stood at 1,683,280. Stock's average daily traded volume for five days was 4,396,717.80: 30 days- 3,803,813.33 and 90 days – 3,473,842.17. The beta of the stock of the company on the date was 0.74, which compared to the benchmark index reflected a lower level of volatility. The stock’s average daily trading volumes on the London Stock Exchange on an average for five days was lower by +15.59 per cent as compared to the 30 days’ average daily traded volume.  During the last one-month period, the shares of the company have generated a return of -11.67 per cent, and on a year-to-date basis generated a return of -11.89 per cent.  

About Diageo Plc

Diageo PLC (LON: DGE) is a London, United Kingdom-headquartered global leader in alcoholic beverages with an outstanding collection of brands across spirits and beer and which aspires to become one of the best performing, most trusted and respected consumer products companies in the world. Every year it produces more than 240 million equivalent units of its brands, from more than 150 manufacturing sites in 30 countries and the geographical diversity of its business helps it to improve its performance continuously. While the group is still a relatively young company – it was established in its current form in 1997 –its foundations were laid years before by giants of the industry – Elizabeth Cumming, John Walker, Arthur Guinness and many more to grow into a group with an outstanding collection of over 200 brands enjoyed in more than 180 countries and employing 30,000 people across its global businesses. The company is listed on the London Stock Exchange and its stock is a constituent of the FTSE 100 index.

The group is the custodian of internationally renowned brands built over hundreds of years and each of its markets is accountable for its own performance and for driving its own growth. The group has a large beer business in Africa with a portfolio that reaches across price points and beer is its second-largest category after scotch, as the company has a global beer business, led by its premium brand Guinness. The company participates in mainstream spirits, so consumers can access its brands at affordable price points and it aims to grow participation in international premium spirits in emerging markets, while it supports premiumization through its premium core and reserve brands in developed markets to enable consumers to trade up into the luxury categories.

The shares of the company are traded on the London Stock Exchange on its Premium Market Segment. There they are identified with the ticker name DGE and they also form part of the FTSE 100 index.

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