Diageo, the drinks giant behind Guinness, Baileys and Smirnoff, has warned that currency volatility will hit profits and sales this year.
The company expects currency moves to have a negative impact of £175m on net sales, while profits will be dented by £45m, based on rates of $1.32 and €1.13 per pound sterling. On Thursday morning, the pound was trading at $1.3174 and €1.1263.
Ivan Menezes, Diageo’s chief executive, said the year had started well, with performance in line with expectations, in a trading update ahead of the company’s annual general meeting.
“We continue to execute our strategy with discipline and agility and despite seeing increased volatility in some markets we continue to expect organic net sales growth in the 2919 fiscal year to be broadly in line with last fiscal year and consistent with our medium-term guidance of mid-single digit growth,” he said.
“We are focused on delivering both growth and efficiency, allowing us to continue to reinvest in the business to support the long-term growth of our brands.”
Mr Menezes added: “In recent weeks, we have experienced some increased emerging market foreign exchange volatility, which has been partially offset by a strengthening of the dollar.”
Sterling has been sensitive to Brexit-related headlines over recent weeks, jumping on signs that a deal might be reached, and tumbling on reports that a no-deal scenario is becoming more likely.
Fiona Cincotta, senior market analyst at City Index, has previously warned of more volatility in store for the UK currency.
“The pound and the FTSE 100 index are both vulnerable to potential sell offs if a hard Brexit looks like an increasingly realistic prospect, regardless of the current strength of the UK economy,” she said.
“Traders will be keen to price in the risk to UK assets of a hard Brexit well ahead of the actual event itself, although last minute talks may still alleviate this somewhat.”
In 2017, Diageo announced that it was cutting more than 100 jobs across its Scottish operations because of Brexit.
