Diageo slashes profit outlook by £150m

Diageo has warned investors to expect a £150 million drop in its operating profits in 2016 due to adverse currency movements in emerging markets.

Diageo CEO Ivan Menezes said the impact of currency movements would be bigger than expected (Photo: Diageo)

The currency impact warning is significantly worse than than that issued in June alongside the company’s 2015 full-year results, when Diageo said it was expecting a profit shortfall of £100m.

Diageo said that its operating profits for 2016 would be £150m down on the £2.8bn it reported for the 2015 financial year.

Ivan Menezes, Diageo chief executive, said: “Our reported results will be impacted by adverse exchange rate movements which at current rates will reduce operating profit for [2016] by approximately £150 million against last year.”

He said the company’s previous outlook for 2016 underestimated the impact of currency weaknesses causing a downturn in demand in emerging markets, especially for Diageo’s premium spirits portfolio.

“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,” Menezes said.

Diageo, which owns global drinks brands like Johnnie Walker, Smirnoff and Guinness, said that other guidance on its expected performance this year was so far proving accurate.

This includes improved volume growth in the “mid-single digits” in the opening weeks of the current financial year when compared to a weak start last year, especially in its US spirits sales.

However, price increases in the US, as expected, have been “muted”, and an organic net sales drop of 2% for the first half of 2016 is expected for Diageo North America, the company said.