Diageo faces €50m profit hit from currency fluctuations

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Diageo shares were up slightly in afternoon trading in London yesterday despite the company warning that its sales and profits would be impacted by currency volatility.

In a statement ahead of its annual general meeting, the drinks giant said that it expects net sales and operating profit to take a hit of £175m (€197m) and £45m (€50.6m) respectively, as a result of foreign exchange volatility.

The group said that it had experienced some increased emerging market foreign exchange volatility in recent weeks, which had been partially offset by a strengthening of the US 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 [2019]," said CEO Ivan Menezes.

Overall, Mr Menezes said that the year had started well, with the group's performance "in line with expectations."

Organic net sales growth in financial year 2019 is expected to be "broadly in line" with Diageo's last fiscal year, and consistent with the group's medium-term guidance of mid-single digit growth, despite the increased volatility in some markets.

Mr Menezes added that the group continues to expect to grow organic operating margins in line with its guidance of 175 basis points of margin expansion in the three years ending June 30, 2019.

In the 12 months to June 30, Diageo reported sales of £12.2bn (€13.7bn), up 0.9pc year-on-year.

Operating profit for the 12 months was £3.7bn (€4.2bn) on the back of strong gin and Guinness sales.