Diageo Profits To Be Hit By Weak Currencies

24 Sep 2015 --- British spirits maker Diageo, which owns global brands such as Smirnoff, Guinness and Baileys has announced that despite increased sales, weak currencies against a strong pound (£) could wipe £150m (€206m) off the this year’s annual profit.

Chief Executive Ivan Menezes commented: “The year has started well and performance is in line with our expectations. 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. We have continued to deliver positive mix but, as we expected, price increases have been muted. For the balance of the first half we face a tougher comparison against the phasing of shipments last year, particularly relating to innovations in US spirits and our first half guidance for Diageo North America, of an organic net sales decline of 2%, is unchanged.

“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 F16 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 F16 by approximately £150 million against last year.

“We are delivering the change which will further strengthen this business and deliver our performance ambition: building our brands with marketing and innovation and enhancing our distribution platform through investment in our route to consumer. Embedding our sell out discipline has quickened our response to consumer trends, giving us a further competitive advantage and reducing the impact of market volatility on our performance. The changes we have made support our improved working capital management which will drive continued strong free cash flow delivery,” he continued.

“As we achieve our productivity gains, from F17 we expect to deliver mid-single digit organic top line growth on a sustained basis and operating margin expansion of 100 basis points over 3 years. Our brands, our global footprint and our people give me confidence that Diageo can deliver strong and sustained performance,” Menezes concluded.