DIAGEO has warned that foreign currency headwinds could hit operating profits in its current financial year, as it told the City its forecast of a first-half sales decline in the US had not changed.

Updating investors ahead of its annual meeting, the Johnnie Walker and Smirnoff maker said exchange rate movements could reduce operating profit by around £150 million this year, if they stay at current rates.

The spirits giant, linked with a merger with AB InBev target SAB Miller, said its outlook for the year had previously noted that foreign currency weakness could limit demand for premium spirits in emerging markets.

However, chief executive Ivan Menezes insisted that the company continues to “believe that stronger volume growth in F16 will lead to improved top-line performance and that we can deliver modest organic margin improvement.” He added: “Our reported results will be impacted by adverse exchange rate movements which at current prices will reduce operating profit for F16 by approximately £150m against last year.”

Mr Menezes said the distiller had started its current year well, with its performance in-line with its expectations so far.

He reported that the company has achieved “mid-single digit” percentage growth in volumes since July 1, reflecting “both improved volume growth trends and comparison against weaknesses at the start of last year, especially in US spirits.”

Mr Menezes said: “We have continued to deliver positive mix but, as we expected, price increases have been muted. For the balance of the first half we face a tougher comparison against the phasing of shipments last year, particularly relating to innovations in US spirits and our first-half guidance for Diageo North America, of an organic sales decline of two per cent, is unchanged.”

Mr Menezes said Diageo will continue to build its brands through marketing and innovation, while improving its distribution network. Shares in Diageo closed up 16.5p at 1,733p.