Diageo writes down £1.3bn as profit dives

Diageo took a £1.3bn charge for the reduced value of businesses hit by the Covid-19 pandemic as it reported a near-halving of first-half profit.

Operating profit almost halved to £2.1bn from £4bn in the six months to the end of June as net sales dropped 9% to £11.8bn.

Profit was hit by a £1.3bn impairment charge for the value of operations in India, South Korea, Nigeria and Ethiopia, reflecing Covid-19 and "challenging trading conditions". Excluding exceptional items, operating profit fell 15% to £3.5bn.

The maker of Johnnie Walker whisky and Smirnoff vodka recommended a final dividend of 42.47p a share, taking the annual payout to 69.88p a share - up 2%.

Free cash flow fell by £1bn to £1.6bn.

The FTSE 100 company said after a solid first half its business was hit by Covid-19 lockdowns with annual sales falling in all regions except North America.

First-half organic net sales rose 6% in North America and fell 1% in the second half, cushioned by strong off-trade demand during Covid-19. In Europe and Turkey 3% first-half growth was followed by a 31% drop in organic sales in the second half.

Ivan Menezes, Diageo's chief executive, said: "After good, consistent performance in the first half of fiscal 20, the outbreak of Covid-19 presented significant challenges for our business, impacting the full-year performance.

"While the trajectory of the recovery is uncertain, with volatility expected to continue into fiscal 21, I am confident in our strategy [and] the resilience of our business. We are well-positioned to emerge stronger."

Diageo did not report on current trading or comment in detail about the outlook. Its shares dropped 5.9% to £27.13 at 10:00 BST and were the biggest fallers in the FTSE 100 index.

Russ Mould, investment director at AJ Bell, said: "Diageo was nursing a pretty nasty Covid-19-linked hangover this morning as it published a disappointing set of full year results. A resilient dividend wasn’t enough to convince all investors to stay on board. There is also still no guidance on how the company will perform in the current financial year."