Global spirits group Diageo (DGE) has suspended its £4.5bn share buyback scheme and withdrawn financial guidance for its 2020 financial year, though it will still pay an interim dividend.
Diageo said that widespread containment actions put in place by governments across the globe in March, including the closure of bars and restaurants, are having a “significant impact on the performance of our business”.
It said that in mainland China, it is beginning to see a very slow return of on-trade consumption, as restaurants and bars have started to gradually re-open.
However, in North America, where the on-trade channel accounts for approximately 20% of US Spirits’ net sales, most States closed bars and restaurants in March.
In Europe, there have been significant closures of on-trade premises in most countries. This channel accounts for approximately 50% of Europe net sales, although the size of the on-trade channel varies significantly between individual countries.
“In both of these regions, we have seen some pick-up in the off-trade channel (retail stores) in recent weeks, although it is unclear whether this will be sustained,” Diageo said.
In India, a nationwide lockdown has closed the on and off-trade channels, as well as production facilities across most industries, including United Spirits’ supply operations, for an initial period of three weeks until 14 April 2020.
In the group’s main markets in Africa, the on-trade channels have also been impacted, and it has closed two production sites in Nigeria. Governments have also placed restrictions on the on-trade in a number of countries in Latin America and the Caribbean.
In response Diageo is reducing discretionary expenditure and reallocating resources across the group. As part of these mitigation measures, it is stopping A&P spend that will not be effective in the current environment.
Given the global nature of the COVID-19 pandemic, and the uncertainty around the severity and duration of the impact across multiple markets, Diageo said it is not in a position to accurately assess the impact of this on its future financial performance and therefore is withdrawing its 2020 sales and profits guidance.
Additionally, it is suspending its three year £4.5bn share buyback programme for the duration of 2020, having already returned £1.25bn to shareholders under the first phase of the initiative in the period to 31 Jan 2020.
However, its interim dividend of 27.41p per share announced on 30 January will be paid to shareholders as scheduled today (and 14 April to US ADR holders).
CEO Ivan Menezes said: “During this challenging time, our top priority is to safeguard the health and well-being of our people, while taking necessary action to protect our business. I am confident in Diageo’s long-term strategy and our ability to move quickly in this difficult environment.
“We will continue to execute with discipline and invest prudently to ensure we are strongly positioned for a recovery in consumer demand. I am proud of the resilience and commitment of our people as they work hard to support our partners, customers and communities.”
Diageo also said it has donated alcohol to make more than eight million bottles of sanitiser for frontline healthcare workers around the world, while providing support packages for bartenders and others impacted by COVID-19 related closures.
Online delivery operation Naked Wines (WINE) has reported high levels of demand during the coronavirus crisis.
It said that, since restrictions on social gathering began, it has seen higher levels of demand from both new and repeat customers in all of its markets, particularly in the US.
As a result, it is finishing its financial year with “good momentum” and expect revenue for 2020 to be in excess of £200m, which is slightly ahead of current consensus.
It said it has continued to invest aggressively in new customer recruitment and now expect our total investment for the year to be towards the middle of the previously indicated £20-25m range, with its key payback measure being above our 4x target.
“Future trading dynamics clearly remain very uncertain, however we are operating from a position of financial strength which gives us maximum future flexibility around how we prioritise uses of cash,” the company stated.
As at 30 March 2020, the group had over £50m of cash and no debt, and has not seen any material change in patterns of customer funds withdrawals.
“With good access to inventory and significant flexibility to direct our marketing spending to the most effective channels, we expect to continue to invest for growth for as long as strong levels of consumer demand persist,” it said.
Its supply chains continue to operate efficiently. As winemakers are considered agricultural, grape harvest and wine production processes around the world have been able to continue largely unaffected.
Its distribution network is “robust” and continues to operate in all markets. While carriers are prioritising grocery and health supplies, they remain operational and functional and have been able to meet Naked’s needs.
Group CEO Nick Devlin commented: “I am deeply proud of the way our teams have responded to the challenge of adapting to a new way of working in light of COVID-19 and their commitment to serving our customers. To the extent it’s safe to do so we are working hard to continue to connect wine drinkers with world class independent winemakers and bring a moment of normality and enjoyment into their homes without necessitating a visit to a store.
“In the short term, the introduction of social distancing has accelerated the shift in consumer buying behaviour towards online, leading to increased demand from both new and existing customers across all our markets.
“In the US, especially, I believe the current period could serve as an inflection point for the growth rate of the online category, and as the largest direct to consumer player in the US market we are well positioned as customers move online.
“Over the medium-term, COVID-19 and its economic impact clearly creates uncertainty. However, Naked, with its advantaged consumer proposition and strong balance sheet is well placed to meet the challenges of a changing consumer environment.”
Owner of spirits brands Distil has updated the market on the trading for the financial quarter of its financial year ended 31 March 2020.
Its Q4 volumes and revenues showed significant year-on-year growth, with volumes up 80% and revenues up 97% amid an 87% increase in brand marketing.
Exec chairman Don Goulding said the quarter “was in line with our ambitious forecast although, due to world events, we achieved this through a very different mix, particularly during March”.
“Our brands enjoy sales through a tightly managed product range with a broad distribution base and we have therefore been able to adapt to the changes in product mix, trade channel shift and additional uplift in consumer demand.
“Whilst supply chains have been seriously tested during this time, we are grateful to our distributors, customers and logistic partners for their efforts and skills in maintaining availability of our brands to satisfy this high level of demand.”
He noted press reports indicated a 22% year-on-year increase in UK alcohol sales during the month of March as consumers stocked up in anticipation of an extended lock-down period.
He confirmed that sales revenue for Distil’s brands increased 50% year-on-year in March.
“At this stage it is too early to forecast accurate market trends over the next six months, but our brands are relatively well positioned and we will continue to work closely with our trade partners and customers to ensure we maintain stock cover and flexibility through this period.
“When the market returns to some sense of ‘normality’ or a new normality, we will be prepared. It’s important for us to continue to work with both on-trade and off-trade customers to create a range of new products ready to meet those new and changing consumer needs. We are, therefore, advancing new product development with our production partners, designers, distributors and customers.”
Property investor Supermarket Income REIT is tapping investors for £75m via the issuance of new shares to fund the acquisition of more supermarket property assets.
The group will issue new shares at 103p per share – a discount of 5.7% on its current price of 109.25p per share.
The listed property fund is looking for cash to fund the acquisition of two target assets with an aggregate value of approximately £115m in which it is in “advanced discussions” with their owners.
Also it has identified a further pipeline of assets with an aggregate value of approximately £180m.
The £75m, and associated debt, should enable the Company to purchase the target assets, the company said.
Meanwhile, Wagamama owner The Restaurant Group has raised £57m through a share placing to bolster its balance sheet amid the coronavirus pandemic.
The listed group issued 98,299,245 new ordinary shares at 58p per share – a discount of 3.2% to on its closing price of 59.9p at the time of the offer.
Announcing the placement last night, the company stated: “The placing is expected to provide sufficient liquidity for the Company to deal with this challenging environment and enable it to continue to operate, where possible, through this extraordinary period whilst ensuring that it is well positioned for the eventual normalisation.”
On the markets this morning, the FTSE 100 is up 2.2% to 5,799.3pts.
Yesterday in the City
The FTSE 100 ended yesterday down 0.5% to 5,677.7pts, largely holding onto the gains from Monday and Tuesday.
The major fallers yesterday included Bakkavor, down 9.9% to 67.6p, Glanbia (GLB), down 7.3% to €8.06, Nichols (NICL), down 5.2% to 1,100p, McColl’s (MCLS), down 4.7% to 41p, Applegreen (APGN), down 3.7% to 235p, Greencore (GNC), down 2.9% to 167p and Marks & Spencer (MKS), down 2.7% to 108.3p.
Risers yesterday included SSP Group (SSPG), up 9.7% to 297.8p, WH Smith (SMWH), up 8.5% to 1,189p, Marston’s (MARS), up 5.3% to 42.4p, Greggs (GRG), up 5.2% to 1,849p, Stock Spirits (STCK), up 4.8% to 176.4p, B&M European Value Retail (BME), up 4.2% to 299.7p, McBride (MCB), up 3.5% to 59p and Compass Group (CPG), up 2.9% to 1,277.5p.