Scotch sales slump as Diageo takes a £1.3bn writedown

● Spirits giant sees profits almost halve ● But maintains full-year dividend plans

Diageo, Scotland’s biggest distiller, saw annual scotch whisky sales dive by 17 per cent after the impact of Covid-19 exacerbated weak trading earlier in the year.

The drinks giant, which is behind global brands including Johnnie Walker and Guinness, reported profits almost halved in the year to 30 June after it was hammered by the closure of pubs and bars.

The pandemic also saw it take a £1.3 billion write-down across its operations in India, Nigeria, Ethiopia and Korea.

Total sales fell by 9 per cent to £11.8bn for the year despite being boosted by growth in North America and operating profits dropped 47.1 per cent to £2.1bn.

However, the firm said it had seen improvements continue through the fourth quarter, with sales moving higher in April, May and June. The company also said it was maintaining its final dividend of 42.47p a share despite the tough second half.

Chief executive Ivan Menezes described it as a “year of two halves” with a good performance in the first offset by the major challenges posed in the second.

However, he said actions taken to strengthen the business over the last six years had provided a solid foundation.

“We are now a more agile, efficient and effective business,” he said, although added the trajectory of the recovery is uncertain.

Scotch represents 23 per cent of Diageo’s net sales and the group said overall global performance in the first half was impacted by ongoing commercial challenges along with political and economic disruption, which was further exacerbated by Covid-19 in the second half.

Overall sales across Britain fell by 4 per cent after a “solid” first half was counteracted by on-trade closures from March despite an increase in off-trade sales.

The impact was further amplified by the cancellation of significant sporting events. Continued growth in rum and liqueurs was offset by declines in beer, scotch, wine and vodka.

In the US market, strong demand for tequila helped the group deliver an overall 2 per cent rise in net sales. Malt whisky also continued to perform well with growth from Oban and Lagavulin, as well as Talisker and Mortlach.

The impact of Covid-19 has seen the company suspend a three-year plan to return £4.5bn to shareholders.

William Ryder, equity analyst at Hargreaves Lansdown, said: “Diageo is still a great business, still owns some terrific brands and whisky is still a very difficult market for newcomers to break into. The hit to earnings should be shortlived provided the global economy doesn’t take too long to recover.”

But he said management will now have to focus more on debt reduction “than they probably would have liked”.

Edward Mundy at Jefferies also warned that its share price could come under pressure if it is forced to revise profit expectations in the future.