How Exchange Rates Are Hammering Some Of Your FTSE Favourites

Should Diageo plc (LON:DGE), Reckitt Benckiser Group Plc (LON:RB), Unilever plc (LON:ULVR), Burberry Group plc (LON:BRBY) and ASOS plc (LON:ASC) shareholders be concerned?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

A strong pound is having an adverse impact on the sales and profits of some of your favourite big-brand FTSE companies. Just how bad is the situation, and should shareholders be concerned?

Diageo (LSE: DGE), the owner of world-leading brands, including Johnnie Walker whisky and Smirnoff vodka, is just one of our top blue chips suffering from high exposure to the recent economic and currency weakness across many emerging markets.

A year ago, Diageo guided for a £55m adverse impact on operating profit from exchange rates for the company’s financial year to 30 June. The figure had risen to £280m by January this year, and £330m by April (representing a hit to annual operating profit of getting on for 10%), with Diageo highlighting currency chaos in Venezuela in particular.

Similarly, iconic British fashion house Burberry (LSE: BRBY), which sells particularly well in the Asia Pacific region, last month gave guidance on the impact of exchange rates for its financial year to 31 March 2015. The company said that at current exchange rates the impact “will be material”: more specifically, £50m — equivalent to 15% of last year’s reported profit.

Reckitt Benckiser (LSE: RB), the owner of Cillit Bang and other top household cleaning brands, gave us a broader regional idea of currency impacts on sales in this year’s first-quarter results.

Region Sales growth at constant exchange rates Sales growth at actual exchange rates Impact of exchange rates
Europe/North America +2% -3% -5%
Latin America/Asia Pacific +12% -6% -18%
Russia/Middle East/Africa +4% -12% -16%

Meanwhile, the shares of ASOS (LSE: ASC), the high-flying online global fashion destination for 20-somethings, fell 30% on the release of a trading update last week. The company reported negative currency impacts on sales for the three months to 31 May in the EU (-5%), the US (-11%) and the rest of the world (-15%).

The resultant higher mix of UK and European sales, which have lower margins, led ASOS to warn on profits for the company’s current financial year to 31 August, with margin guidance reduced to 4.5% from 6.5%.

As the ASOS numbers imply, the euro, while not as strong as the pound, has nevertheless strengthened against many currencies around the world. As such, Unilever (LSE: ULVR), which reports in euros, has also suffered from adverse exchange rates. The consumer goods giant, whose brands range from Ben & Jerry’s ice cream to Dove beauty products, reported a 9% negative currency impact on this year’s first quarter sales.

For inexperienced investors in these popular FTSE companies, the reported sales and profit numbers, and recent uninspiring — or downright dire — share-price performances may seem scary. However, the impact of exchange rates on big multinational companies waxes and wanes, positively and negatively.

Here at the Motley Fool, we believe in investing in companies for the long term. And if you’re a long-term investor, be assured that short-term currency movements are nothing to worry about.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester does not own any shares mentioned in this article. The Motley Fool owns shares in Tesco and Unilever, and has recommended shares in ASOS.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »