DIAGEO has warned volatile exchange rates in some emerging markets will hit operating profits by £45 million in its current year.
The weakness of sterling since the Brexit vote in June 2016 has boosted the Johnnie Walker distiller because it generates the bulk of its earnings overseas. The strength of the dollar versus the pound has benefited its earnings in the US, its biggest market, where it achieves around 34% of net sales.
In a statement prior to its annual meeting yesterday, chief executive Ivan Menezes noted that in recent weeks Diageo had “experienced some increased emerging exchange volatility, which has been partially offset by a strengthening of the dollar.”
Mr Menezes added: “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.”
Diageo’s assessment is based on exchange rates of the pound being worth $1.32 and €1.13.
It previously estimated that exchange rate movements for the year ending June 30, 2019 would adversely impact net sales by around £70m, and operating profit by about £10m. That was based on exchange rates of £1 trading for $1.33 and €1.13.
Diageo said trading this year has so far been in line with expectations and forecasts organic net sales growth for the year to be similar to last year.
The pound was trading at $1.33 at 5pm last night.
Ian Forrest at The Share Centre, said: “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 the overall performance remains in line with expectations.”
Shares closed up 41p at 2,654p.
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