Diageo warns of £150m operating profit loss

Diageo has warned that its operating profit for 2015/16 will plummet by approximately £150 million due to “adverse exchange rate movements”.

Diageo CEO Ivan Menezes has warned investors that operating profits could fall by £150m in 2015/16

Ivan Menezes, CEO of the group, issued a statement ahead of Diageo’s AGM, claiming that its 2015/16 fiscal year started “in line with expectations”.

However, he added that since price increases have been “muted” and Diageo faces a “tougher comparison” against last year’s shipment phasing, he anticipates a 2% organic net sales decline.

In addition, the firm expects that “further currency weakness could impact demand for premium spirits in the emerging markets” in this financial year.

As such, current exchange rates would cause the firm’s operating profits to fall by by £150m compared to 2014/15, when profits reached £2.79bn.

“We are delivering the change which will further strengthen this business and deliver our performance ambition: building our brands with marketing and innovation and enhancing our distribution platform through investment in our route to consumer,” said Menezes.

“Embedding our sell out discipline has quickened our response to consumer trends, giving us a further competitive advantage and reducing the impact of market volatility on our performance.

“The changes we have made support our improved working capital management which will drive continued strong free cash flow delivery.”

He continued: “Our brands, our global footprint and our people give me confidence that Diageo can deliver strong and sustained performance.”

In July this year, Diageo reported that its organic full-year sales for 2014/15 had been hit by currency volatility, political instability and a weak US market.

While net sales stagnated, organic operating profit fell by 1%.

In particular, the firm was impacted by currency devaluation in Venezuela, Europe and Russia, excise duty increases in Kenya and a “challenging environment” in Nigeria.

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