Diageo faces €206m currency hit

Diageo faces €206m currency hit

Guinness and Smirnoff owner Diageo said the strong pound will knock its profits by a bigger-than-expected £150m (€205.61m) this year.

The drinks giant, which operates in 180 countries, has previously said that currency weakness in emerging markets would impact its operating profit by £100m (€137.06m).

Chief executive Ivan Menezes said in an update ahead of its annual meeting today: “Our reported results will be impacted by adverse exchange rate movements.”

The FTSE 100 firm has pinned its growth on an expanding middle class in emerging markets in Latin America and Asia who could afford its premium brands such as Johnnie Walker, Capitan Morgan and Tanqueray.

However, in recent years the global slowdown has pegged back the firm’s growth.

Mr Menezes also said that he expected first-half sales in the US to fall by 2% compared to a year ago, due to increased competition in the spirits market.

The drinks maker’s boss added that volumes had grown by “mid-single digit” percentages, but that “price increases have been muted.”

The firm said that while currencies were weaker in emerging markets it believed it would continue to grow volumes in these markets this year, which would lead to modest margin improvements.

Mr Menezes said that overall the year had started in line with expectations.

Shore Capital analyst Phil Carroll said: “Volume growth seems to be particularly strong with it said to have grown mid-single digits, albeit against a weak comparative especially in US spirits.”

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