UK, London -- Diageo PLC warned Thursday that exchange rate volatility would dent its annual profit by as much as 100 million pounds (US$185 million). Diageo, whose brands include Smirnoff, Johnnie Walker and Guinness, said that business during the second half of the financial year ending June 30 was "broadly in line with expectations." It said it expected organic growth in sales volumes and operating profits to reach six percent for the year, Associated Press posted on July 8.
However, currency movements would likely squeeze Diageo's pretax profits before exceptional, one-time charges by between 95 million pounds (US$176 million) and 100 million pounds (US$185 million). In addition, restructuring expenses due to cost-cutting would squeeze its annual pretax profit by about 50 million pounds (US$93 million), it said in a trading update.
Looking ahead, London-based Diageo said that weakness in the US dollar, Nigerian Naira and Venezuelan Bolivar would contribute to an estimated loss of 100 million pounds (US$185 million) for the current financial year. Operating profit for 2005 would be similar to that of the just-completed 2004, it added.
Diageo's shares fell by 2 percent to 711.90 pence (US$13.17) each in afternoon trading on the London Stock Exchange.
Diageo didn't estimate its full-year profit for 2004. Its net profit for the six months ending Dec. 31 was 891 million pounds.
The company restated its sales and operating profit for 2003 to conform with several new accounting rules. Under one of these new rules, called FRS 17, British companies must report on their balance sheets any surplus or deficit in their pension funds.
The restatement resulted in a net decrease of 159 million pounds in 2003 sales to a new level of 8.80 billion pounds. Operating profit fell by 74 million pounds to a restated figure of 1.90 billion pounds.
Diageo said that its increasing number of brands, geographic diversity and "robust pricing" were helping to boost sales.
"After a number of years in which we have funded the costs of our strategic realignment to focus on premium drinks, the strong cash generative characteristics of this business are becoming increasingly apparent," chief executive Paul Walsh said in a statement.
09 July, 2004
