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Diageo (DGE) boss Ivan Menezes has warned that £150m will be wiped off this year’s operating profits as a result of exchange rate movements. However, Menezes promised that the long-awaited return to growth for the drinks group was still set to begin in 2017.
In a trading update ahead of the drinks group AGM later today, the CEO of the Johnnie Walker and Guinness owner said the year had started well and performance was in line with expectations.
It comes after another disappointing year (to end of June) for Diageo with sales flat once again and volumes and operating profits declining for a third year in a row.
And profits are set to take another hit in the current financial year as currency headwinds continue to bite at the group, which trades in many different countries.
“Our outlook for this financial year included the possibility that further currency weakness could impact demand for premium spirits in the emerging markets,” Menzes said. “Therefore while currencies are weaker in these markets, we continue to believe that stronger volume growth in F16 will lead to improved top line performance and that we can deliver modest organic margin improvement. Our reported results will be impacted by adverse exchange rate movements which at current rates will reduce operating profit for F16 by approximately £150m against last year.”
Menezes took charge on Diageo two years ago and has suffered from a long hangover in emerging markets. The CEO warned in the most recent full year results that a recovery at the firm would likely be delayed until 2017.
“We are delivering the change which will further strengthen this business and deliver our performance ambition,” he said.
“As we achieve our productivity gains, from F17 we expect to deliver mid-single digit organic top line growth on a sustained basis and operating margin expansion of 100 basis points over three years. Our brands, our global footprint and our people give me confidence that Diageo can deliver strong and sustained performance.”
Morning update
2 Sisters Food Group is to invest £55m to boost its growing ready meals division, including the complete reconstruction of its Pennine Foods factory in Sheffield, The Grocer exclusively reveals this morning. To read the full story click here.
Elsewhere on the LSE, Real Good Food (RGD) also issues a trading update ahead of its AGM. Executive chairman Pieter Totté is expected to tell shareholders that the board is “very satisfied” with the way that trading has started during the early part of the new financial year. “Pleasingly, our cake decorating businesses continue to perform well, showing good EBITDA growth with our most recent acquisition, Rainbow Dust, making a healthy contribution,” he will add. Total group revenue is currently down on a like-for-like annual basis as a result of continued commodity price deflation, particularly in both the dairy and sugar markets, which affected the Garretts ingredients subsidiary.
Shares in Real Good Food fell 3.5% on trading opening down to 50.2p. Diageo is currently flat on yesterday’s closing price. The FTSE 100 is up 0.7% at present to 5,976 points after falling below 6,000 yesterday on a miserable day for most stocks (see below).
Yesterday in the City
The listed supermarkets were only kept off the bottom of the FTSE 100 by some large falls for the mining giants.
The latest Kantar Worldpanel market share data saw Morrisons (MRW) stock lead the way with a slide of 4.5% to 152.1p, followed by Tesco (TSCO), which fell 4.3% to 169p. The pair registered further falls in market share and sales in the 12 weeks to 13 September. Tesco market share dipped 0.6% to 28.2% and sales fell 1%, while Morrisons sales fell back 1.4%.
Sainsbury’s (SBRY) was the only one of the big four to increase sales, up 0.9%, but its share price still ended the day 1.6% in the red at 227.8p.
Online rival Ocado (OCDO), not mentioned in Kantar figures, also slumped 6% to 326p. The retailer made big gains last week after upgrades from two investment banks.
The other big faller of the day was Irn-Bru maker AG Barr (BAG). Shares were down 5.7% to a near three-year low of 530p after the group posted disappointing first-half numbers, with sales slipping 3% to £130m.
The FTSE 100 index was also down 2.8% (172.9 points) to 5,935.8 points as weak oil and metal prices pushed down commodity stocks and the retailers had a tough day.
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