Diageo warns on currency hit

SHARES in Diageo, the world's biggest spirits firm, dipped on as the Smirnoff vodka and Guinness beer maker warned of the impact of exchange rates and efficiency measures.

The British firm said adverse foreign exchange moves, largely the weaker dollar, would cut about £100m off pre-tax profits before exceptional items in the year to June 2005, about the same as for the year to June 2004 and higher than analysts were expecting.

The maker of Johnnie Walker scotch and Captain Morgan rum also warned that efficiency measures costing £50m would hit profit margins in the short term, although they would eventually expand margins.

Diageo shares were down 1.5% as industry analysts trimmed their earnings expectations for the year to June 2005.

In a trading update, Diageo said sales and volumes in the year just ended would show similar rises to those in its first-half of 6% and 3% respectively, while annual underlying operating profits were expected to grow by 6%.

But the Cuervo tequila and Bailey's liqueur group added that sales, volumes and profit rises were expected to be similar for the year just started, while many analysts had pencilled in higher growth.

Among Diageo's closest rivals, No.2 spirits group Allied Domecq in April warned over currency translation and slow volume growth, while No.3 player Pernod Ricard in May saw 2004 profits rising before a currency impact.

Diageo announces year results on September 2.