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Diageo Says Currencies Will Lower Profit More Than Expected

Diageo North America expects first-half net sales to fall 2%, however, as comparisons get tougher.

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At the same time the expected rise in interest rates in the United Kingdom and USA means sterling may rise further as investors’ cash flows out of emerging markets and into richer economies, harming Diageo’s reported revenues from those growth markets.

The drinks giant, which operates in 180 countries, has previously said that currency weakness in emerging markets would impact its operating profit by £100 million.

In a trading update for its annual meeting, Diageo said it sold more drinks in the first three months of its financial year than a year earlier.

Ivan Menezes, Diageo chief executive, said: “Our reported results will be impacted by adverse exchange rate movements which at current rates will reduce operating profit for [2016] by approximately £150 million against past year “.

“Volume has grown mid-single digit reflecting both improved volume growth trends and comparison against weakness at the start of previous year , especially in US spirits”, it said, adding that price increases have been “muted”.

Mr Menezes said Diageo will continue to build its brands through marketing and innovation, while improving its distribution network.

“This does mark a deterioration, albeit not a massive one”, James Edwardes Jones, an analyst at RBC Capital Markets said in a note today.

And developing economies will also under-deliver because of the currency swings.

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But he retained his “outperform” recommendation and £20 price target on the shares. Ennismore – owner of London’s Hoxton Hotel – said it would be retaining the management and 900-strong workforce at the venue, which hosted last year’s Ryder Cup.

Diageo owns some of the world's best-known spirits brands such as Smirnoff vodka