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Diageo full-year sales plunge as demand in bars,…

By Siddharth Cavale

Aug 4 – Diageo Plc, the world’s largest spirits maker, reported a bigger-than-expected decline in underlying net sales on Tuesday as demand for its whisky, vodka and gin fell in all markets except North America.

The Johnnie Walker whisky maker reported an 8.4% drop in organic sales for the year ended June 30, larger than the 7.3% fall analysts had expected, company supplied estimates showed.

This marks the company’s worst annual sales performance in more than a decade, according to Bernstein analysts.

Diageo shares were down 6.2% in early trading and was the biggest loser on the FTSE. The stock is down nearly 10% this year, better than the FTSE’s 20% decline over the same period.

By region, organic sales in Asia fell the most, dropping 16% due to the impact of coronavirus-related closures of alcohol outlets and bars in India and Thailand, while in China demand was hit by the absence of the Chinese New Year.

The company’s Latin America, Africa and Europe and Turkey markets also posted double-digit falls in sales, mainly due to disruptions to supply chains and fewer social occasions due to the pandemic.

North America was the only bright spot, with sales rising 2%, reflecting strong demand for tequilas and ready-to-drink beverages at supermarkets and alcohol stores, the company said.

Chief Financial Officer Kathryn Mikells said the strong results in North America, its biggest market by revenue, was because 80% of Diageo’s sales came from retail stores, in contrast to other markets, where bars and restaurants make up most of the sales.

“The outbreak of COVID-19 presented significant challenges for our business, impacting the full year performance,” Chief Executive Officer Ivan Menezes said in a statement.

The company, which also makes Tanqueray Gin, Smirnoff Vodka and a wide range of scotch whiskey, said it was still unable to provide specific outlook for the year, after abandoning a full-year forecast in April. Its 4.5 billion pound ($5.9 billion) capital returns programme remains suspended.

Diageo’s business outlook was in contrast to French spirits maker Pernod Ricard, which last month said the pandemic would not hit its full-year profit as strongly as initially feared, due to resilient sales in U.S and European supermarkets and strong cost control measures. ($1 = 0.7633 pounds) (Reporting by Siddharth Cavale in Bengaluru; Editing by Bernard Orr, Saumyadeb Chakrabarty and David Evans)

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