Diageo sales boost hit by currency weakness

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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