Diageo profits plunge 47% as the Johnnie Walker drinks giant's clients stop spending during covid.

Johnnie Walker drinks giant Diageo today admitted profits for the past year plunged 47% after Covid-19 hit its businesses around the world.

The company had to take a one-off hit of £1.3 billion to reflect the lower value of its operations in India, Nigeria, Ethiopia and Korea as the virus swept across those markets.

Operating profits plunged 47.1% to £2.1 billion as sales fell nearly 9% to £11.8 billion.

Growth in sales in North America during the year to 30 June was more than offset by heavy falls in other regions.

However, chief executive Ivan Menezes said he would still pay the same final dividend to shareholders as last year, of 42.47p a share, bringing the full year dividend to 69.88p, up 2% on a year ago.

He described it as a "year of two halves," saying: "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."

However, he said the extensive restructuring of the business over the past six years had created an organisation with the flexibility to respond to the crisis. "We are now a more agile, efficient and effective business," he said.

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

The dividend payment is likely to be seen as a compensation for shareholders after Diageo put on hold a three year plan to return £4.5 billion to them as the company scrambled to safeguard its balance sheet. That process also included doing a $2 billion bond issue earlier than planned and setting up a £2.5 billion credit facility with lenders.

Diageo said it will not resume the payments until it gets its leverage down as a proportion of its underlying profits. That ratio has got worse due to the sharp fall in its profits, currently standing at 3.3% - above the 2.5% to 3% targeted range and is expected to stay above that goal through the year ending next June as well.

Free cash flow fell from £2.6 billion in 2019 to £1.6 billion as profits and dividend income from joint ventures and associates plunged.

In the key US market, scotch sales fell after the previous year's successful performance of the Johnnie Walker White Walker launch. Smirnoff, Ketel One and Ciroc vodka sales also fell. However, strong shop sales of tequila - up by a third - led to net sales growth of 2% for the year.

In Europe, Guinness sales suffered massive falls, down more than 20% in the year. That percentage fall was the same in Johnnie Walker as bars and hotels were closed during lockdown. Vodka and gin fell, too, with the latter declines led by Gordon's and Tanqueray, again due to the closures of bars.

UK sales were not down as badly as the rest of Europe, falling 4% compared to 12% overall as more people bought rum and liqueurs in shops. Beer, scotch, wine and vodka sales fell heavily. Cancellations of big festivals and events where Diageo's brands tend to sell well also hammered the results.

Ireland was one of the worst countries affected due to the nation's love of Guinness. Sales were badly affected by the lockdown on pubs and bars.