Diageo halts buyback scheme amid coronavirus pandemic

09 April, 2020

Diageo has suspended share buybacks for the rest of the year as a result of financial uncertainty sparked by the coronavirus outbreak.

Investors were thankful to learn this morning that they would still receive the 27.41p per share payout the London-listed firm announced in January. Many companies have decided to keep hold of their cash amid the coronavirus pandemic, but Diageo revealed its interim payout will go ahead as scheduled.

However, it has halted its share buyback scheme as part of cost cuts related to the COVID-19 outrbeak. “We have not initiated the next phase of the three-year programme, and we will not do so during the remainder of fiscal 2020,” Diageo explained in a statement today.

The Johnnie Walker, Smirnoff and Guinness producer said in July 2019 that it would distribute up to £4.5 billion over a three-year period. It has now returned £1.25 billion as part of that scheme, but it is currently on ice.

Half of Diageo’s European revenue comes from the on-trade, which has been absolutely decimated by the coronavirus lockdown. Bars, pubs and restaurants have been ordered to close in many countries while authorities battle to contain the coronavirus spread.

The firm is better protected in North America, where just 20% of its net sales go through the on-trade. An increase in sales at supermarkets and online retailers has helped mitigate some of the volume lost in the on-trade, but Diageo said it is “unclear whether this will be sustained”.

It said the on-trade is beginning to open up again in mainland China, as bars and restaurants have slowly begun to resume trading. However, the significant impact upon travel retail in Asia has now extended to the rest of the world.

In India, a nationwide lockdown has closed the on and off-trade channels, as well as production facilities across most industries, including United Spirits' supply operations, for an initial period of three weeks until 14 April 2020. Restrictions have also impacted production sites and routes to market in Africa, Latin America and the Caribbean.

While Diageo had net borrowings of £13.6 billion at the end of December, it has no financial covenants attached to any of this debt. It said it has available bank facilities of £2.8 billion, and in March it issued £1.9 billion of new bonds.

“During this challenging time, our top priority is to safeguard the health and well-being of our people, while taking necessary action to protect our business,” said chief executive Ivan Menezes. “I am confident in Diageo’s long-term strategy and our ability to move quickly in this difficult environment.

“We will continue to execute with discipline and invest prudently to ensure we are strongly positioned for a recovery in consumer demand. I am proud of the resilience and commitment of our people as they work hard to support our partners, customers and communities.”





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Nick Strangeway

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