Sterling fall tipped to ease Diageo's profit fears

DIAGEO, Scotland's largest Scotch whisky company, is expected to unveil a diminishing of negative headwinds from emerging markets and currency hits when it posts its interim res­ults this Thursday.

Ivan Menezes, chief executive of Diageo, will be quizzed on any planned sell-offs by the company

The group, the world’s biggest spirits business, warned last September that it expected the strong pound to knock its annual profits by £150 million in its current financial year.

But City analysts believe the weakening of sterling over several months as the prospect of a UK interest rate rise has faded mean the hit will be less.

Phil Carroll, drinks anal­yst at Shore Capital, said: “Diageo earns about 40 per cent of its profits in North America, so it will benefit from the fall in sterling bec­ause it will be able to sell more product there in dollars. I now expect the currency impact over the full year for the company to be between £30m and £40m less.

“In addition, I think Diag­eo will say the performance in emerging markets will be still negative, but improved. This could be the nadir of the down-cycle for Diageo.”

ShoreCap has forecast flattish full-year earnings of £2.83 billion compared with £2.80bn last time. Ivan Menezes, Diageo’s chief executive, will be quizzed on any further planned sell-offs at the company, which last year divested the lion’s share of its wine business and the Gleneagles Hotel. The year before it sold Bushmills whiskey.

Scotch whisky represents a quarter of Diageo’s net sales, down 5 per cent last year.

However, 80 per cent of the decline was due to destocking in the likes of south-east Asia.

Carroll said he expected the interim results to show “pockets of good growth”.