FY20 profit to be c. 4% lower Diageo has this morning released a statement quantifying the expected impact of the coronavirus on its business. FY20 sales are expected to lose £225-325m (c. 2% at the midpoint) and operating profit is expected to lose £140-200m (c. 4% at the midpoint) as a result of the virus. China is a high margin market, hence the disproportionate impact on profits. The majority of consumption in China is in the on-trade channel, which is under significant pressure. Chinese New Year buying was also affected by the virus, which emerged during a key gift giving and celebratory period. Management does not expect the business to pick up until the end of its Q4 (March-June). Mainly an issue in Asia, for now Sales in other parts of Asia are also under pressure. Diageo calls out South Korea, Japan and Thailand as being weak, as well as Global Travel Retail. It is not yet seeing any impact in other markets to which Asian tourists might normally have been travelling, such as Europe, but we consider this to be a possible risk.