Diageo Plc: Performance In Line With Group’s Expectations

The spirit giant, which also owns Guinness, put out a trading update ahead of its annual general meeting with shareholders on Wednesday and warned that profits are going to be £150 million lower than past year .

The maker of Johnnie Walker whisky and Smirnoff vodka said currency movements will reduce its operating profit by GBP150 million compared with the 2015 financial year, when it posted operating profit of GBP2.8 billion. The world’s biggest distiller, which is mired in a two-year sales slump, reiterated it expects an organic net sales decline of 2 percent in the first half in North America due to a tougher comparison with the year-earlier period.

Chief executive Ivan Menezes said that sales volumes themselves were growing well, rising in “mid-single digit” percentages “in line with expectations”.

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.

Therefore while currencies are weaker in these markets, we continue to believe that stronger volume growth in FY16 will lead to improved top line performance and that we can deliver modest organic margin improvement.

Mr Menezes added that Diageo is working to build its brand in emerging markets with increased advertising and innovation, and is responding more quickly to changing consumer trends. Its United States market was impacted as smaller competitors entered the market, while in China new rules over extravagant gift-giving previously dented sales. “Our brands, our global footprint and our people give me confidence that Diageo can deliver strong and sustained performance”.