News Column

More UK firms warn on strong pound

July 31, 2014

Jennifer Rankin, theguardian.com



British American Tobacco and contract caterer Compass have become the latest companies to warn that the strong pound is hitting profits.

The tobacco giant said profits for the first half of the year were down by 9% to 2.6bn as a result of adverse currency movements. The maker of Rothmans and Lucky Strike was also hit by a 0.4% decline in the number of cigarettes sold, but said it continued to gain market share.

Compass, which serves meals in 50 countries, said if sterling remained strong, profits would be down by 7% or 92m.

"In the third quarter of 2014, sterling has continued to strengthen against many of the group's key currencies, including the US, Canadian and Australian dollars, the euro, yen, and Brazilian real," the company said. "If the current spot rates were to continue through the fourth quarter of 2014, we would expect a negative currency impact." The caterer buys and sells its produce in local currencies, so the currency affect hits its reported revenues and profits.

The pound has appreciated by about 12% against a basket of currencies since the start of the year, boosted by the prospect that the Bank of England may be the first major central bank to raise interest rates after a long period of cheap borrowing. But the rise in sterling has triggered a spate of profit warnings, as London-listed companies translate their foreign earnings back into pounds.

Adverse currency movements have triggered more than a fifth of profit warnings in the first half of 2014, compared with just 3% last year, according to a recent report by consultancy group EY.

On Monday, the International Monetary Fund warned that the pound was 5-10% overvalued, a factor preventing export growth that would help rebalance the economy.


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Source: Guardian Web


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