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Diageo shares jumped yesterday after it raised its outlook thanks partly to a strong performance in the United States, as home drinkers splashed out on brand name booze.
Boss Ivan Menezes said the drinks giant, which makes brands ranging from Guinness to Johnnie Walker, had seen ‘robust demand’ in supermarkets and shops during the period, with particularly good growth in the US market, where it expanded its market share in spirits.
Shares in Diageo were up 6 per cent yesterday after the chief executive declared trade in Europe outside hospitality venues had remained ‘robust’ while its sales in Chinese restaurants and bars was recovering. Shares dipped 1.3 per cent this morning.
But he revealed that travel sales continue to be badly affected, as does its banqueting business in China, while on-trade sales in Africa, Latin America, the Caribbean and India are expected to revive slowly.
‘We have made a good start to fiscal 21, with sequential improvement in our performance across all regions, driven by strong execution, robust demand in the off-trade channel and the gradual re-opening of the on-trade channel in most markets,’ Menezes wrote.
Diageo has seen a fall-off in net sales and profits this year because of the coronavirus pandemic, though its overall trade has still managed to hold up relatively well.
Pre-tax profits plunged by 47 per cent to £2.1billion in the year to June 30, as it was damaged by a £1.3billion writedown on the value of assets in India, Nigeria, Ethiopia and South Korea.
The drinks giant, which also makes Smirnoff vodka, reported an 8.4 per cent drop in organic sales for the year, its worst performance in more than a decade and said it expects lower sales and margins compared to the first half of fiscal 2020.
He added that Diageo’s outlook for the first half of the financial year ‘has improved since the year-end, reflecting the good start to the year, particularly for our US business,’ which Barclays analysts’ believe is responsible for about 45 per cent of the firm’s profits.
However, the company is particularly concerned that rising infection rates in Europe will negatively impact its commerce, because they increase the chances of additional restrictions being put in place.
Last week, the UK government introduced a 10pm curfew for bars, restaurants and pubs in England to try and prevent the spread of coronavirus, a move that the hospitality sector has fervently criticised.
Places serving alcohol must operate table service only, and no more than six people can attend hospitality venues as a group. Customers must also have their details logged in case they need to be traced.
Scotland has even stricter rules for patrons visiting pubs and restaurants. Customers must wear a face mask when they are not sitting down to eat and drink, and singing and shouting is not permitted.
Chancellor of the Exchequer Rishi Sunak announced the same day that VAT on food and soft drinks would be extended for another six weeks, but there was no direct support mentioned for the pub industry.
Emma McClarkin, the chief executive of the British Beer and Pub Association, said the chancellor ‘missed a golden opportunity’ to extend the VAT cut to alcohol and called on the government to cut beer duty in its next Budget.
‘We need the Government to recognise that consumer confidence is fragile, and the additional restrictions that could be in place for a further six months will only make this worse,’ she added.