Diageo PLC (LON:DGE) has said it will pay its scheduled interim dividend today but the drinks maker put the cap on share buybacks for the rest of this year as the financial outlook is unclear with pubs and bars closed around the world due to the coronavirus I(COVID-19) pandemic.
Income investors will be thankful for the 27.41p per share payout that the FTSE 100 group declared in January, as most of the FTSE 350 has decided it best to keep hold of their cash.
While Diageo had net borrowings of £13.6bn at the end of December, it has no financial covenants attached to any of its debt, and in March issued £1.9bn of new bonds, plus it said it has available bank facilities of £2.8bn.
Closures of pubs, bars and other on-trade venues across North America, Europe and elsewhere is hitting the maker of Smirnoff vodka, Johnnie Walker whisky and Guinness stout understandably hard. The on-trade accounts for 20% of net sales in the US and 50% in Europe.
Sales from supermarkets and other off-trade stores has seen “some pick-up” in both regions in recent weeks, Diageo said in a trading update, “although it is unclear whether this will be sustained”.
In China, it said there has been only a “very slow” return to sales from on-trade, though the significant impact on sales from airports and other global travel retail has extended around the world with the grounding of most airlines fleets.
Diageo said it is reducing discretionary spending and reallocating resources across the group, including providing an “appropriate level of support to our key suppliers and customers to ensure we are strongly positioned for a recovery in consumer demand”.
“I am confident in Diageo's long-term strategy and our ability to move quickly in this difficult environment,” chief executive Ivan Menezes said in the statement.
“We will continue to execute with discipline and invest prudently to ensure we are strongly positioned for a recovery in consumer demand.”
Shares in the group rose 3% to 2,591p by mid-morning on Thursday, still down 19% so far in the year to date.
Analysts at Hargreaves Lansdown said: “Governments all over the world have closed pubs and restaurants to combat the spread of COVID-19, and this has had a predictable impact on Diageo’s sales.
“While the proportion of sales made in these venues varies by region, the impact is fairly significant everywhere.”
They added: “Diageo is likely to have a rough quarter or two, but its brands are strong enough to carry the group to a robust recovery once the virus passes. Fortunately, Diageo has no problem accessing liquidity, making it unlikely the group will come under any serious financial strain in the immediate future. However, if the shutdowns go on long enough even the most well-fortified balance sheets could find themselves a little unsteady.”
-- Adds share price and broker comment --