Diageo issues foreign currency warning

Shore Capital analyst Phil Carroll said: “Volume growth seems to be particularly strong with it said to have grown mid-single digits, albeit against a weak comparative especially in United States spirits”.

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

Diageo, the world’s largest spirits company, said sales had risen so far in its new fiscal year, but that foreign exchange rates were increasingly eating into its operating profit. It had previously said the problem would cut profits by £100m.

Overall, the firm estimated exchange rate movements “adversely impacted” both net sales and operating profit by approximately £370m and £100m respectively in the year. 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.

But for the past two years, China’s President Xi Jinping has been cracking down on corruption in Chinese government and business, and a big part of that has been stopping the bribery of officials.

Diageo’s brands include Smirnoff, Johnnie Walker, Baileys and Guinness.

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.

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 holds its annual meeting with shareholders today.