Pound wipes £1.5bn off UK plc profits

The soaring pound is savaging corporate Britain, with more than £1.5bn wiped off the year-to-date profits of a string of top multinationals in recent days, reports The Telegraph.

The number of blue-chip companies to have reported, since the last week of July, big sterling-linked blows to their bottom lines has now climbed to 19.

Defence company Cobham on Thursday reported it had taken a £5.4m hit on first-half profits due to the strength of the pound; while engineering firm Amec said currency changes cut £16m from its income in the six months to June 30.

But the damage has been wrought across the entire spectrum of UK Plc.The biggest casualties were Barclays, the high street bank, which reported a £460m hit to profits at the half year; BAT, the tobacco producer, which attributed a £400m drop in profits during the first half to the pound’s performance; and Diageo, the drinks giant, which said currency headwinds knocked £350m off full-year earnings. GSK, Britain’s largest pharmaceuticals manufacturer, Merlin, the theme park operator, and contract caterer Compass have also been affected.

The pound has soared 13pc against the US dollar and 10pc against the euro so far this year on the back of Britain’s startling economic recovery – wreaking havoc with those companies heavily exposed to foreign markets.

Between April and June, 63 UK-quoted companies issued profit warnings, the highest rate for three years. Adverse currency moves triggered a fifth of those, compared with just 3pc last year, according to EY, the accountancy firm.

Industrial and engineering heavyweights are among the biggest losers, with the strong pound denting profits at Rolls-Royce, the engine maker; BAE, the aerospace and defence goliath; and GKN, the aircraft parts supplier. Meggitt, IMI and Weir were also squeezed.

A strong pound delivers a double whammy. Exporters suffer as goods and products become less competitive overseas; then foreign earnings shrink when converted back into sterling for reporting purposes.

Currency swings are felt most strongly among Britain’s largest companies. The FTSE 100 is one of the most international indexes in the world: Goldman Sachs calculates that 80pc of overall sales among the FTSE 100’s constituents are made overseas. Half of the FTSE 250’s sales are made beyond the UK.

However, many chief executives remain calm about the strong pound on the assumption it is likely to level out in the coming months.

Following a £23m hit to half-year earnings, Angus Cockburn, the interim chief executive of power supply firm Aggreko, said: “Currency is like a fairground rollercoaster. What goes up one minute goes down the next.”

Companies are under no obligation to reveal the impact of currency movements on their profits. However, of the 19 companies that have reported a blow to their pre-tax or operating profits from the strong pound in the past two weeks, 16 put a monetary value on the pain. Fourteen of those companies revealed the impact to their profits over the first half of the year.

For the purposes of comparison, we halved the number when, in one case, a company estimated the impact of currency on its full-year results. Likewise, we doubled the figure for the one company that revealed how the strength of sterling altered its quarterly figures.