Currency weakness to pull €200m off Diageo profits

Guinness owner, Diageo, has warned that the weakness of the euro and emerging market currencies, against sterling, could reduce annual profits by £150m (just over €200m) this year.

The London-headquartered international drinks giant offered the assessment, yesterday, as part of a trading update, ahead of its AGM.

Although Diageo’s current financial year is less than three months old and runs to the end of next June, and the estimate is based on current rates, it marks a slight worsening.

In July, the group suggested that currency headwinds could knock £100m (€137m) off its fiscal-year, 2016 operating profits.

While yesterday’s update didn’t mention any specific non-UK currencies, Diageo has previously warned of the bottom-line effects it could feel from a weaker euro, Russian rouble and Venezuelan Bolivar.

However, Diageo’s management yesterday said the first quarter of the current financial year had started well, with performance “in line” with expectations.

“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 2016 will lead to improved top-line performance and that we can deliver modest organic margin improvement,” said chief executive, Ivan Menezes.

“Volume has grown mid-single digit, reflecting both improved volume growth trends and comparison against weakness at the start of last year, especially in US spirits,” Mr Menezes said, but he said guidance for a 2% year-on-year decline in first-half net sales in America remained unchanged.