Diageo steady despite blow from currency fluctuations

● Boss warns of £45m hit to profits from movements ● But stresses that group performing in line with targets

Johnnie Walker maker Diageo is expecting to see its profits watered down to the tune of £45 million after being hit by currency movements.

The global drinks giant, which ranks as Scotland’s largest whisky producer, has also warned over “volatility” in some of its markets.

In a stock market update, the group behind brands including Bell’s, Guinness, Smirnoff and Baileys said trading for the year had “started well” and that performance was still in line with forecasts. However, both sales and operating profits are expected to take a modest hit due to currency fluctuations.

Chief executive Ivan Menezes told investors: “In recent weeks, we have experienced some increased emerging market foreign exchange volatility, which has been partially offset by a strengthening of the dollar.

“Based on current rates we currently expect exchange to have a negative impact on net sales of £175m and a negative impact on operating profit of £45m for the fiscal year”.

But he stressed that the company, which employs thousands of people in Scotland, remained in rude health.

“The year has started well and performance is in line with our expectations.

“We continue to execute our strategy with discipline and agility and despite seeing increased volatility in some markets we continue to expect organic net sales growth in [the current financial year] to be broadly in line with last fiscal year and consistent with our medium-term guidance of mid-single digit growth.”

The trading statement was released ahead of the group’s annual shareholder meeting.

Ian Forrest, investment research analyst at the Share Centre, said: “The target of improving the profit margin by 175 basis points in the three years to 2019 also remains intact but based on current exchange rates net sales would be reduced by £175m for the full year and operating profits down £45m.

“To put that in context the company reported net sales of £12.2 billion last year with operating profits of £3.7bn.

“While today’s news is slightly disappointing, the market’s calm reaction to it is telling and shows that investors are focusing more on the fact that the overall performance remains in line with expectations.

“The market will also be conscious that there are other positives such as the £2bn share buyback scheme which began in August.”

He added: “We continue to recommend the shares as a ‘buy’ for investors seeking a lower risk portfolio with a balance of growth and income due to the strength of its brands, excellent long-term prospects in major emerging markets such as China and India, and the good long term track record of dividend increases.”