LONDON (Alliance News) - UK companies Wednesday started to warn that they are facing a profit hit from the gains sterling has made over the last six months, as revenues they bring back from sales overseas are worth less when translated into pounds.
Luxury fashion house Burberry Group, polymer products manufacturer Fenner, and Diploma, the maker of products including hydraulic seals, wiring and medical and environmental devices, all warned of a hit from sterling's rise.
The pound has risen 10% against the US dollar, 12% against the Australian dollar and 4.2% against the euro since mid-July.
Burberry reported a further sharp rise in revenues in its fiscal third quarter to the end of December, but warned that "at current levels, exchange rates will be a significant headwind in the second half and beyond."
Fenner said sterling had strengthened against all the major currencies in which its revenues are generated. It said that if the currency rates on December 31 had been applied to its results for its last financial year ending August 31, 2013, its operating profit excluding amortisation would have been about GBP9 million lower.
Diploma said its revenues were up 4% in its fiscal first-quarter, but would have been up 6% if currencies had remained stable over the period. It said its overseas revenues were hurt particularly by sterling's rise against the Canadian and Australian dollars, and to a lesser extent the increase against the US dollar.
Fenner and Diploma were among the biggest decliners on the FTSE 250 as a result of the warnings, although Burberry was the biggest gainer on the FTSE 100 as its sales beat market expectations.
Sterling's rise isn't all bad for British companies. Those importing goods from overseas for sale or use in manufacturing in the UK are benefitting from the increase as it makes those goods cheaper in sterling terms. Many large international companies will also use hedging instruments to help them offset the impact of currency moves. Commodities, often traded around the world in dollars, are cheaper in sterling terms.
However, more companies that sell goods overseas and then report their revenues in sterling are going to report an impact from the pound's rise in coming weeks.
In other company news, stockbroker Hargreaves Lansdown has warned that it will have to garner about GBP3.5 billion of new assets over the next three years to offset the lower fees it will charge clients as a result of new rules on the way the industry operates. It hopes its lower fees will enable it to take customers from rivals, some of whom may not be able to afford to cut their fees to the same extent.
Japan's Toshiba Corp is going to enter the UK nuclear energy market, investing GBP102 million to take a 60% stake in the joint venture between GDF SUEZ of France and Iberdrola of Spain that's going to build three new reactors at Moorside in Cumbria. GDF SUEZ will hold the other 40% of the NuGeneration venture, with Iberdrola exiting. Toshiba is the second Japanese giant to enter the UK nuclear programme after Hitachi bought a project to build new plants in 2012.
Equity markets in general are performing strongly Wednesday after the World Bank raised its growth projections for the global economy, saying that the easing of fiscal consolidation measures in high-income countries has boosted prospects.
The lender said it now expects the world economy to grow 3.2% this year, stronger than the 3% expansion it had forecast in June. It now expects global gross domestic product to grow 3.4% in 2015, slightly faster than its previous forecast of 3.3%, followed by 3.5% in 2016.
Elsewhere, Egyptians are voting on the second and final day of a referendum on a draft constitution that the military-backed government says is aimed at restoring democracy after the ouster of Islamist president Mohammed Morsi. Voter turnout was sluggish in most polling stations, state television reported, but was expected to pick up in the afternoon at the end of the working day.
Thai anti-government protesters held a mass march down a central Bangkok thoroughfare Wednesday, in the third day of a campaign to paralyze parts of capital, and amid reports of violence. Protest leader Suthep Thaugsuban launched a march down Sukhumvit Road, a main street lined with high-rise condominiums and international bars and restaurants. The march followed overnight attacks on an opposition leader's home and on protesters in another part of the capital.
The fallout from the US spying scandal continues to rumble on. A programme that sweeps up mass telephone records is valuable, but should be changed to protect Americans' rights, a review panel told Congress Tuesday as President Barack Obama weighs changes to US surveillance programmes. Obama said he was "close" to completing his review of US surveillance programmes ahead of a planned speech on reforms later this week.
However, the New York Times reported that the US intelligence agency has covertly installed software on nearly 100,000 computers worldwide, allowing it to spy on them, and recruit them for possible cyber attacks. Most were installed by the National Security Agency via network connections, but the agency has devised a way of reaching unconnected computers by means of radio waves, the paper reported, citing NSA documents, computer experts and officials.
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FTSE 100: Up 0.4% at 6,796.02
FTSE 250: Up 0.1% at 16,244.64
AIM ALL-SHARE: Up 0.1% at 881.01
GBP-USD: 1.6415
EUR-USD: 1.3611
GOLD: USD1,237.70 an ounce
OIL (Brent): USD106.15 a barrel
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KEY UK CORPORATE NEWS:
FTSE 100: Tullow Oil reported higher 2013 profits and sales but lowered its production guidance for 2014. It said average net working interest production will be 82,200 barrels of oil equivalent per day in 2014 after the sale of assets in Bangladesh, and it expects to write-off about USD405 million of 2013 exploration assets and USD325 million of previous exploration assets. BHP Billiton has appointed Tony Cudmore from Exxon Mobil Corp as its President of Corporate Affairs. The resources company said Cudmore will join the group's management committee and start his role in March, based at company headquarters in Australia. The annual ore contract price talks are under way, and Japanese smelter Pan Pacific Copper has said it could not reach an agreement with BHP Billiton on copper processing fees and hence would not sign a long-term contract with the miner, according to reports. he Japanese firm is said to have asked for USD92 per ton to treat copper concentrate and 9.2 cents per pound to refine the metal.
FTSE 250: Sandell Asset Management Corp has called on FirstGroup to reconsider its "premature" rejection of a plan it put forward calling on the company to split itself up and sell assets in order to drive shareholder value. Jupiter Fund Management said its assets under management increased to GBP31.7 billion at the end of 2013, up 20% from a year earlier, as it booked net mutual fund inflows of GBP458 million in the final quarter of the year. Cumulative net mutual fund inflows were GBP1.2 billion for the whole of 2013. Taylor Wimpey became the latest UK housebuilder to report an increase in the number of new homes built and the average selling price of its properties during 2013, boosted in part by the UK government's flagship mortgage financing scheme, Help to Buy. Outsourcing company Mitie Group has acquired Complete Care Holdings Ltd, a provider of housing and healthcare services for the elderly, for GBP9 million in cash, an acquisition that will boost its own healthcare business MiHomecare. Mitie said it expects integration costs of about GBP1.3 million. African Barrick Gold has reported positive initial results from drilling in Kenya and exploration drilling at Bulyanhulu in Tanzania, saying results confirmed extensions in mineralisation. Cairn Energy said that operator Wintershall Norge AS has informed it that it is about to complete drilling of two appraisal wells on the 418 production license in the Norwegian North Sea, and they will then be plugged and abandoned. Cairn has a 20% interest in the license. Sub-prime lender Provident Financial said it expects its results for its recent financial year to be in line with market expectations, as strong trading at its Vanquis Bank unit continues to make up for weak demand for credit at its consumer credit division. Bwin.party and partner Borgata have reportedly taken a 45% market share in the newly-regulated New Jersey online gambling market. 888 has reportedly taken a share of 28%.
AIM: Altona Energy is a big gainer after revealing that Wintask Group has completed its due diligence and is transferring the second tranche of funds regarding an equity issuance in October. Altona said it has so far received GBP1.8 million of the GBP2.4 million outstanding under the terms of the placing agreement. Shares in Firestone Diamonds are also up after it secured USD140.0 million in new financing, completing the funding it needs for the construction of the main treatment plant at its Liqhobong Diamond Mine in Lesotho. The company said it had agreed a deal in principle, subject to conditions including shareholder approval, for a package comprising bridge and mezzanine facilities and equity subscriptions from two new strategic investors: Pacific Road Resource Funds and Resource Capital Fund VI LP. Egdon Resources is up after London-listed UK Oil & Gas Investments said it plans to buy Angus Energy Eakring Development Ltd and Angus Energy Kirklington Development Ltd for GBP290,000 as it seeks to expand its interest in UK oil fields. Earking and Kirlington own 10% interests in onshore UK Petroleum Exploration and Development Licence (PEDL) 118 and PEDL 203 located in Nottinghamshire in the East Midlands Petroleum Province. Egdon Resources is the operator of these PEDL's. Shares in Stellar Diamonds have also risen as the company said that significant progress has been made towards production at its 1.1 million carat Tongo dyke kimberlite diamond project in Sierra Leone. MediaZest shares have been boosted after the creative audio visual company announced that it has signed a memorandum of understanding with Argus Global to develop and promote face recognition software. At the other end of the market, Anglo Asian Mining shares have fallen after the gold producer said it missed its production target for 2013 and expects to report lower overall profit in its upcoming full-year results.
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AFTERNOON WATCHLIST: US NY Empire State Manufacturing Index, US Producer Price Index, US EIA Crude Oil Stocks change, US Fed's Evans Speech, US Fed's Beige Book, Japan Domestic Corporate Goods Price Index, Japan Machinery Orders
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Thursday's Key UK Corporate Events
Development Securities Interim Management Statement
Halfords Group Interim Management Statement
Lavendon Group Trading statement
Ocado Group Christmas Trading Update
Rio Tinto Production Report
N Brown Interim Management Statement
Experian Interim Management Statement
Aberdeen Asset Management Interim Management Statement
Associated British Foods Interim Management Statement
Computacenter Trading statement
Dixons Retail Trading statement
Home Retail Group Interim Management Statement
NCC Group Interim Results
Premier Oil Trading statement
Bovis Homes Group Trading statement
Ladbrokes Trading statement
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Thursday's Key Economic Events
n/a UK 30-year Bond Auction
00:01 UK RICS House Price Balance
04:30 Japan Industrial Production
07:00 Germany Consumer Price Index
09:00 EU ECB Monthly Report
10:00 EU Consumer Price Index
10:00 Germany German Buba President Weidmann speech
13:30 US Consumer Price Index
13:30 US Jobless Claims
13:30 US Treasury Sec Lew Speech
14:15 US FOMC Member Williams speech
15:00 US NAHB Housing Market Index
15:00 US Philadelphia Fed Manufacturing Survey
15:30 US EIA Natural Gas Storage change
16:10 US Fed's Bernanke Speech
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By Steve McGrath; steve.mcgrath@alliancenews.com; @stevemcgrath1
By Alice Attwood; aliceattwood@alliancenews.com; @AliceAtAlliance
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