Diageo, the world’s biggest distiller, said it expected
better sales growth this year than last but that the hit to operating profits
from weaker currencies would be greater than expected, at £150m.
The weakness of emerging-market currencies against the pound
is likely to chop about £150m off Diageo’s annual profit, according to the
maker of drinks brands including Guinness and Johnnie Walker.
In a trading update for its annual meeting, Diageo said it
sold more drinks in the first three months of its financial year than a year
earlier.
But the company said continued weakness of currencies
outside the UK would increase the expected impact on profit for the year to
June 2016. It had previously said the problem would cut profits by £100m.
Diageo, whose other brands include Smirnoff and Baileys, did
not say which currencies were to blame but it previously listed the euro, the
Venezuelan bolivar and the Russian rouble as the main currencies that had fallen
against sterling.
Ivan Menezes, Diageo’s chief executive, said: “Our outlook
for this financial year included the possibility that further currency weakness
could impact demand for premium spirits in the emerging markets.
Therefore, while currencies are weaker in these markets, we
continue to believe that stronger volume growth in full-year 2016 will lead to
improved top-line performance and that we can deliver modest organic margin
improvement.
“Our reported results will be impacted by adverse exchange
rate movements, which at current rates will reduce operating profit for
full-year 2016 by approximately £150m against last year.”
The strength of sterling against currencies in emerging
markets, where Diageo has expanded rapidly, has caused the company problems for
more than a year. The pound has also increased by about 8% against the euro
this year after the European Central Bank loosened monetary policy to support
euro zone growth.
At the annual meeting in London, Menezes could face
questions from shareholders about Diageo’s lacklustre performance, as well as
takeover activity in the drinks industry after Anheuser-Busch InBev’s
approached SABMiller about forming a £160bn brewing giant.
Diageo’s shares, down 8% this year, were little changed at
£17.21 in early trading.
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