When we released our interim results on 30 January 2020, we commented on the expectation of an impact from the Coronavirus (COVID-19) outbreak, which we were not able to quantify at the time. We are now providing an update on the expected range of the adverse impact in fiscal 2020 of the evolving COVID-19 situation.
As the situation continues to unfold, our primary concern remains the welfare of our colleagues, their families and their local communities and we will continue to provide all support possible. Authorities in China and in other impacted countries have taken strong and decisive action and continue to work tirelessly to contain the spread of the virus.
Public health measures across impacted countries in Asia Pacific, principally in China, have resulted in: restrictions on public gatherings, the postponement of events and the closure of many hospitality and retail outlets. Several countries and many businesses have also imposed restrictions on travel.
It is difficult to predict the duration and extent of any further spread of the COVID-19 outbreak both in and outside of Asia. Based on current information we have made assumptions to estimate the fiscal 2020 impact on the performance of the following businesses:
· Bars and restaurants have largely been closed and there has been a substantial reduction in banqueting. As the majority of consumption is in the on-trade, we have seen significant disruption since the end of January which we expect to last at least into March.
· Thereafter, we expect a gradual improvement with consumption returning to normal levels towards the end of fiscal 2020.
On-trade, in other impacted countries in Asia Pacific:
· The outbreak in several other Asian countries, especially South Korea, Japan and Thailand, has led to events being postponed, a reduction in conferences and banquets, and a drop in tourism which have all impacted on-trade consumption.
· We expect gradual improvement throughout the fourth quarter of fiscal 2020.
Travel Retail, mainly in the Asia Pacific region:
· The outbreak has caused a significant reduction in international passenger traffic, especially in Asia.
· Recovery of passenger traffic is assumed to be gradual, resulting in weaker performance for the remainder of fiscal 2020.
On this basis, we estimate the negative impact in fiscal 2020, on the group’s organic net sales and organic operating profit, to be in a range of £225m to £325m and £140m to £200m, respectively, with the timing and pace of recovery determining the impact within these estimated ranges. The COVID-19 situation is dynamic and continues to evolve and these ranges exclude any impact of the COVID-19 situation on other markets beyond those mentioned above. We will continue to monitor the situation closely.
We remain confident in the growth opportunities in our Greater China and Asia Pacific business. Diageo will continue to invest behind our brands, ensuring we are strongly positioned for the expected recovery in consumer demand.