Diageo shows signs of return to growth but held back as currency headwinds hit revenue and profits

Diageo said on Thursday that revenue for the full year ended June 30 2016 fell 3% to £10.5bn, while net profit declined 6% to £2.24bn ($2.94bn), from £2.38bn a year earlier as currency devaluations and sale of its wine business hit the figures.

When tallied up, the drinks maker lost £330m compared to 2014/15 fiscal year and £137m in net profits largely due to unfavourable foreign exchange movements and weak currencies against the pound sterling, South African rand, Nigerian Naira, Venezuelan bolivar and the Brazilian real.

The company also took an impairment charge on cachaça brand Ypióca totalling £118m and also disclosed £49m worth of “disengagement agreements” relating to its Indian subsidiary United Spirits.

However, on an organic basis, which strips out the cost of acquisitions and currency movements, revenue grew 2.8%, while operating profit climbed 3.5% on a 1.3% volume lift.

The company said revenue from its U.S. business rose 3% as expected, with Smirnoff and Captain Morgan delivering better results than previous years.

However, emerging markets such as Nigeria and Brazil continued to be a struggle for the company, with revenues falling 15% and 9% respectively; although sales in India, which is its second biggest market rose 5%.

Diageo noted that sales of its famous brand, Guinness stout performed well in Ireland with a 4% gain and 4% rise globally. It attributes the sales lift globally to increased sales in emerging markets. For instance, sales of Guinness rose into the double-digits in Cameroon and Ghana, and by 3% in Nigeria.

Looking into the future, Diageo said it was sticking to its prior forecast for sales to grow at a mid-single-digit rate over the next three years with operating margins growing by 1%.

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