UK Companies Reveal Brexit Impact on Earnings Outlook
Josh Noble, Nicholas Megaw and Joel Lewin in London
Financial Times
The sharp fall in sterling is already feeding through to corporate earnings expectations, with some companies warning of a negative drag from the exchange rate shift but others hoping to see a boost in the bottom line.
Sterling has dropped more than 10 per cent since the UK voted to leave the EU late last month, and is now trading at levels not seen since the mid-1980s. The fall has been driven in part by economic and political uncertainty, but also by growing expectations of rate cuts from the Bank of England.
On Thursday morning, the pound was up 0.3 per cent to $1.2960 against the dollar, while the FTSE 100 gained 0.9 per cent.
Pest control company Rentokil, which is listed on the FTSE 250, said on Thursday that the positive impact from currency moves on profits for 2016 could almost double as a result of the recent slide in the pound.
The company said profits for the year could increase to £245m, having previously forecast a figure of £230m. It generates around 90 per cent of earnings from outside the UK.
Associated British Foods, owner of clothing chain Primark, said it too now believes earnings could be better than previously thought as a result of the lower exchange rate.
“Our outlook for this financial year has improved and we no longer expect a decline in adjusted earnings per share for the group for the full year”, it said on Thursday.
However, some companies have warned that the Brexit vote and the subsequent drop in sterling will have an adverse effect on results.
Sports Direct said the weaker pound will have a “significant” impact on its margins in the next year and beyond, and predicted a “continuing drag on consumer confidence” after the Brexit referendum result.
Its shares have fallen by more than a quarter since the vote, compared to an 8 per cent decline in the FTSE 250. However, shares jumped more than 10 per cent at the open on Thursday morning.
Cider maker C&C Group also said the currency volatility was likely to be detrimental to the company’s performance. It generates around half its profits from the UK, but reports in euros.
“At current levels, if sustained, currency movements have the potential to undo the earnings benefit from both cost reduction activity and the steady progress made in trading year-to-date,” it said.
Bovis Homes, which also updated investors on Thursday, said it was simply too early to tell whether the result would have a significant impact on the housing market.
“The first insight we will get in the post-Brexit world is the length and depth of the autumn selling season,” it said.
Shares in housebuilders have been among the worst hit since the vote, amid speculation that the result will bring a multiyear boom in UK property prices to an abrupt halt. Bovis shares have fallen almost 40 per cent in the past two weeks alone.
This article has been amended to clarify that the positive effect on Rentokil’s profits from currency moves could double from the fall in the pound, not the company’s total profits.
Financial Times
The sharp fall in sterling is already feeding through to corporate earnings expectations, with some companies warning of a negative drag from the exchange rate shift but others hoping to see a boost in the bottom line.
Sterling has dropped more than 10 per cent since the UK voted to leave the EU late last month, and is now trading at levels not seen since the mid-1980s. The fall has been driven in part by economic and political uncertainty, but also by growing expectations of rate cuts from the Bank of England.
On Thursday morning, the pound was up 0.3 per cent to $1.2960 against the dollar, while the FTSE 100 gained 0.9 per cent.
Pest control company Rentokil, which is listed on the FTSE 250, said on Thursday that the positive impact from currency moves on profits for 2016 could almost double as a result of the recent slide in the pound.
The company said profits for the year could increase to £245m, having previously forecast a figure of £230m. It generates around 90 per cent of earnings from outside the UK.
Associated British Foods, owner of clothing chain Primark, said it too now believes earnings could be better than previously thought as a result of the lower exchange rate.
“Our outlook for this financial year has improved and we no longer expect a decline in adjusted earnings per share for the group for the full year”, it said on Thursday.
However, some companies have warned that the Brexit vote and the subsequent drop in sterling will have an adverse effect on results.
Sports Direct said the weaker pound will have a “significant” impact on its margins in the next year and beyond, and predicted a “continuing drag on consumer confidence” after the Brexit referendum result.
Its shares have fallen by more than a quarter since the vote, compared to an 8 per cent decline in the FTSE 250. However, shares jumped more than 10 per cent at the open on Thursday morning.
Cider maker C&C Group also said the currency volatility was likely to be detrimental to the company’s performance. It generates around half its profits from the UK, but reports in euros.
“At current levels, if sustained, currency movements have the potential to undo the earnings benefit from both cost reduction activity and the steady progress made in trading year-to-date,” it said.
Bovis Homes, which also updated investors on Thursday, said it was simply too early to tell whether the result would have a significant impact on the housing market.
“The first insight we will get in the post-Brexit world is the length and depth of the autumn selling season,” it said.
Shares in housebuilders have been among the worst hit since the vote, amid speculation that the result will bring a multiyear boom in UK property prices to an abrupt halt. Bovis shares have fallen almost 40 per cent in the past two weeks alone.
This article has been amended to clarify that the positive effect on Rentokil’s profits from currency moves could double from the fall in the pound, not the company’s total profits.
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