Diageo’s sales growth hampered by currency weakness

Diageo, the world’s largest distiller and maker of key brands like Guinness stout and Johnnie Walker, said that it expected sales growth in 2015 than in the previous year but was being hampered by currency weakness in emerging markets, which would lower operating profits by about £150 million.

In a trading update for its annual meeting, the drinks maker said that it sold more drinks in the first three months of its financial year than a year earlier.

But the company said that continued weakness of currencies outside the UK would lower profits to June 2016. It previously forecasted a lowering of profits by £100m.

Diageo, whose other brands include Smirnoff and Baileys, didn’t 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 the sterling.

Ivan Menezes, Diageo’s Chief Executive Officer, said: “Our outlook for this financial year included the possibility that further currency weakness could impact demand for premium spirits in 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 continued appreciation of the pound sterling against currencies in emerging markets, where Diageo has expanded rapidly, has caused the company problems for more than a year.” The pound has appreciated by about 8 percent 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 weak performance, as well as takeover news in the beer market, where Anheuser-Bush Inbev’s merger talks with SABMiller worth £160bn.

Diageo’s shares are down 8 percent this year.

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One Response to Diageo’s sales growth hampered by currency weakness

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