Diageo set to reveal Far East turmoil has damaged profits

Diageo, the new drinks giant formed by the merger of Guinness and Grand Metropolitan, is expected to announce on Monday that financial turmoil in the Far East will have a severe effect on profits. The warning will come as the group unveils its first ever trading statement.

Analysts believe the problems in Asia will turn out to have a much bigger impact on earnings than first thought as the crisis spreads throughout the continent and threatens to dampen economic growth.

The Far East contributes up to 10 per cent of Diageo's profits. However demand for spirits such as whisky has fallen as the financial crisis has bitten and there is evidence of customers switching to cheaper, lower margin spirits brands. The continued slump in the value of Far Eastern currencies will also reduce earnings in pound terms. The brokers Societe Generale have knocked pounds 35m off profit forecasts for the year to June. The cuts mirror moves by other analysts who have reduced earnings estimates by as much as pounds 70m over the next few years.

One drinks analyst said: "Diageo is expected to confirm analysts' predictions that its problems in the Far East have escalated."