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Diageo warns of £200m hit from coronavirus outbreak


Drinks behemoth Diageo is braced for a £200m profit hit after the coronavirus outbreak forced thousands of bars and restaurants across China to close. 

The world’s biggest spirits maker – which owns brands including Guinness, Johnnie Walker and Baileys – said full-year sales will be between £225m to £325m lower due to disruption caused by the lockdown in China, one of its biggest markets.

The firm said profits will be down by between £140m and £200m for the year following the crisis in China, where restrictions on public gatherings have forced swathes of pubs and restaurants to close. 

Diageo issued the warning as a sharp sell-off on stock markets ran out of steam on Wednesday, with European shares flat for most of the session and the US bouncing back. 

Bosses said it has also been hit by travel restrictions around the world, while sales have suffered in China’s neighbouring countries – particularly South Korea, Japan and Thailand.

The company expects its business in China to return to normal levels by the end of June, when its financial year ends.

There was also a glimmer of hope on the markets following a brutal two-day sell off earlier this week as investors woke u-p the risks of a pandemic following outbreaks in Italy and Korea.

It looked as though heavy share price falls seen on Monday and Tuesday would continue in early trading on Wednesday, with US oil hitting a new one-year low of $49.88 a barrel and the FTSE 100 dropping below 7,000 points for the first time since February 2019.

But sentiment improved as traders gritted their teeth and bought the dip in the expectation of a recovery, as well as higher spending and interest rate cuts to limit the damage.

Trevor Greetham, a fund manager at Royal London, said: “Virus disruption is very unlikely to force the world economy into recession.

 “We expect to see a large but temporary hit to economic activity, followed by a bounce-back later in the year that additional stimulus could make stronger than it otherwise would be.”

Trading volumes have been exceptionally high in the past few days, with shares swapping hands at numbers last seen during the deep drops of December 2018. 

Masanari Takada, an analyst at Japanese bank Nomura, said “panic selling” of developed countries’ stocks was likely driven by hedge fund traders which make returns by betting on a fall in share prices.

The deadly covid-19 outbreak has prompted a string of firms with supply chains or operations in China to warn over the impact to their business. 

Danone, which makes Activia yogurt and Evian water, said sales will come in €100m (£85m) lower during the first quarter than previously expected.

The outbreak has forced the company to close a bottled water factory in Wuhan, the Chinese city where the virus was first detected. 

Upper Crust owner SSP which operates a string of food outlets in airports around the world, said group revenue in February will be up to £12m lower. Operating profit will drop by around £5m, it said.

The firm’s sales across the Asia-Pacific region are expected to come in 50pc lower for February than they did a year earlier.

The Geneva motor show, one of the biggest gatherings in the automotive calendar, is under threat from the coronavirus. Organisers of the exhibition, which opens to the press on Tuesday, are asking participants to check that any attendees are free of symptoms for 14 days before taking part.

Ratings agency Moody’s further cut its expectations for the automotive industry in response to the outbreak’s spread. It said a fall in demand and disruption to supply chains would mean overall car sales drop by 2.5pc in 2020, compared to a previously expectation of a 0.9pc fall.


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