Diageo, makers of Guinness and Smirnoff, has forecast a much bigger than previously expected hit from foreign exchange movements this year after a period of volatility on emerging markets driven by rising US and European interest rates.
The company said that it expected currency effects to knock £175 million (€197 million) off net sales, compared with a previous estimate of £70 million that would also wipe £45 million off its full-year profits, up from a previous estimate of £10 million.
Said chief executive Ivan Menezes in an update ahead of its 2018 meeting of shareholders, “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.”
In its July results, the company, which suffers when sterling rises because it reduces the value of its largely foreign sales, assumed average rates of the pound at $1.35 compared to $1.27 a year ago.
The company also said it continued to expect operating margins growth of 175 basis points in the three years ending June 30th, 2019.
Diageo also reported that Organic net sales growth in fiscal 2019 would be “broadly” in line with last fiscal year.