Sterling’s descent spells bad news for Irish firms
Forecasters are suggesting the pound could stay low for some time as the deteriorating economic outlook raises the prospects of rate cuts from the Bank of England over the next 12 months.
Unguarded comments over the weekend by Alistair Darling, the British chancellor, who said Britain was facing its worst economic crisis in 60 years saw sterling hit an all time low against the euro yesterday.
If sterling stays low over the next 12 to 18 months the earnings implications for some Irish companies could be quite significant, warned Eamonn Hughes, analyst with Goodbody Stockbrokers yesterday.
“The latest lurch down for the pound will undoubtedly raise a few eyebrows for Irish corporates, since the UK represents the largest market outside the home market for many of our leading companies,” said Mr Hughes.
Some Irish companies such as Tullow, RPS and UTV, who report in sterling will not be affected.
In the food sector Greencore stands out as it makes 80% of its profits in sterling though its convenience food operations. As a result it will be hard hit if sterling stays as it is.
In the case of the financial institutions Bank of Ireland and Anglo are vulnerable with 30% of their profits generated in the British market.
Drinks group C&C, with 40% of its income from Britain, faces a double impact as its production base is in Clonmel.
In the construction sector Abbey & McInerney with around 60% of their earnings and Grafton and Kingspan at 65/50% respectively also “stand out”, he said.
Other companies vulnerable to sterling’s slide due to their earnings exposure include DCC (55%), United Drug (45%), Ryanair (40%) and IFG (80%).
Hundreds of non quoted Irish companies also rely on Britain for a key part of their earnings.
Up to 45% of Irish owned firms sell to the British market with 65% using it as the key export destination for their goods and services.
ISME, the representative body for the small business sector, said firms are facing the added pressure of their profits being diluted by the crisis in Britain’s economy.
Jim Curran, ISME’s head of research, said the earning power of firms was also being eroded by Government stealth taxes as well as the increasingly competitive nature of the global market.
