Diageo writes down assets after closure of pubs and bars
United Kingdom | Although locked-down drinkers may have taken to mixing their own cocktails, this wasn’t enough to stop profit tumbling at the Guinness and Smirnoff owner Diageo.
Reporting preliminary full year 2020 figures on 4 August 2020, the world’s major drinks company said that operating profit was down 47 percent to GBP 2.1 billion (USD 2.75 billion) in the year to the end of June. Most of the damage occurred in the final three months as countries across the world imposed strict lockdown rules.
Sales dropped 9 percent to GBP 11.7 billion (USD 15.4 billion) for the year but plunged 23 percent in the last quarter.
As a result the company was forced to write down the value of its assets across India, Korea and Africa by GBP 1.3 billion (USD 1.7 billion).
Beer sales decline
Diageo isn’t terribly dependent on beer (revenue from beer only amounted to 16 percent of group sales in 2019). But the fact that its sales were down 15 percent for the full year, after growing 2 percent in the first half, must have hurt.
After a solid first half, value sales of Guinness stout dropped 16 percent driven by declines in the larger Guinness markets of Europe, the US and Africa. In Europe and Africa, the on-premise usually accounts for about three quarters of Guinness’ sales.
Also, Diageo made the decision to take back around 500,000 Guinness kegs from its customers in the UK, the US and Ireland during the lockdown. Taking a swipe against its beer industry competitors, Diageo expressly said that it didn’t extend the shelf life on its repatriated beer kegs. In the UK, Heineken had to confess to this “rejuvenating” practice in July.
