UK Companies Warn Strong GBP Will Hurt Profits

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 had 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.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza