Most of the consumption of Diageo’s products in China occurs in the higher margin on-trade channel (banquets, meals out with friends, nightclubs, etc.) and therefore we do not expect a significant “bounce-back” in FY21E. Management expects a gradual recovery to normal levels of consumption by the end of June 2020. Global Travel Retail is expected to take longer to recover. We are concerned that the on-trade in markets outside of Asia could also come under pressure, particularly across Europe. We expect further negative datapoints over the coming weeks, as data providers will soon be releasing the February on-trade sales. Given the valuation remains elevated compared to historic levels, we stay on the sidelines for now. Other companies with meaningful exposure to the on-trade channel in China include Remy, Pernod, ABI (reporting tomorrow), Carlsberg, and Heineken.