Firm euro dents com­pany earn­ings

What Euro­pean CFOs are say­ing about it

The Star Early Edition - - INTERNATIONAL - Sofia Horta eCosta

EUROPE’S soar­ing cur­rency, a source of headache for its stock mar­ket, has also been a re­cur­ring theme for the re­gion’s ex­ec­u­tives in the lat­est earn­ings sea­son.

A 12 per­cent rally in the euro this year is push­ing it to­wards lev­els that mar­ket watch­ers pre­dict will be painful for prof­its in the re­gion, par­tic­u­larly for ex­porters who have to both trans­late their over­seas sales back from less valu­able cur­ren­cies, and face com­pe­ti­tion from cheaper prod­ucts abroad.

The con­cern has dragged the Euro Stoxx 50 In­dex down al­most 4 per­cent since a May peak.

Ev­ery 10 per­cent move in the euro wipes out as much as 8 per­cent of earn­ings if not hedged, Mor­gan Stan­ley strate­gist Matthew Gar­man wrote this month.

Europe’s global firms typ­i­cally use fi­nan­cial in­stru­ments to man­age cur­rency risk: this was ev­i­dent in 2015, when they failed to reap the full wind­fall from a slump­ing euro. The level, tim­ing and du­ra­tion of pro­tec­tion can vary sig­nif­i­cantly. Even fully hedg­ing for near-term volatil­ity will “ul­ti­mately only de­lay the im­pact from FX moves” for a com­pany, Gar­man said.

Euro-area firms get 48 per­cent of their rev­enue and 54 per­cent of their costs from do­mes­tic mar­kets, ac­cord­ing to Mor­gan Stan­ley. Be­low is a se­lec­tion of com­ments taken from the lat­est round of earn­ings calls.

Tech

In­fi­neon Tech­nolo­gies chief fi­nan­cial of­fi­cer (CFO) Do­minik Asam told an­a­lysts on Au­gust 1 that ev­ery $0.01 change in the euro-dol­lar ex­change rate moves the Ger­man chip­maker’s rev­enue by about €9 mil­lion each quar­ter. On whether the com­pany can still be more prof­itable next year, he said there will be more clar­ity in Novem­ber.

Con­sumer

Ker­ing: It’s still too soon to raise prices out­side Europe, the Gucci brand owner’s CFO Jean-Marc Du­plaix said on July 27. At the same time, he ac­knowl­edged there could be an ef­fect on pric­ing, tourism flows and prof­itabil­ity, as well as trans­lat­ing rev­enue back into eu­ros and ab­sorb­ing costs in the shared cur­rency.

Adi­das: The sports­wear maker, which gets cost ben­e­fits from a weak dol­lar, has al­ready hedged its cur­rency risk up to the next 18 months, CFO Harm Ohlmeyer said on Au­gust 3. In terms of ef­fects on prof­itabil­ity, the sec­ond half of 2017 will be bet­ter than the first, and the com­pany may get some ben­e­fits next year, he said.

So­ciété BIC: The pen maker has hedges in place at $1.11 per euro for this year, while more than half of 2018 is also pro­tected at a sim­i­lar level, ac­cord­ing to CFO Jim DiPi­etro. Any im­pact from the ris­ing euro will be par­tially off­set by stronger cur­ren­cies in Latin Amer­ica, as­sum­ing it stays around the same level, he said on Au­gust 3.

Cars

Miche­lin & Cie: CFO Marc Henry said on July 25 that the tyre maker is as­sum­ing an av­er­age rate of $1.15 per euro in the sec­ond half of the year.

Daim­ler: The car­maker hedges its cur­rency risk so far out that it’s al­ready cov­ered for most of 2018, CFO Bodo Ueb­ber said on July 26.

Volk­swa­gen AG: For­eign ex­change ef­fect will prob­a­bly have a net pos­i­tive im­pact of about €500 mil­lion in 2017, CFO Frank Wit­ter said on July 27.

In­dus­try, chem­i­cals

Siemens: While the com­pany is typ­i­cally hedged for the next three to six months, CFO Ralf Thomas agreed with an an­a­lyst on Au­gust 3 that a strong euro would prob­a­bly trim the com­pany’s profit mar­gin by be­tween 50 ba­sis points and 100 ba­sis points in 2018.

Bayer: The Ger­man firm said a 1 per­cent­age point move in the euro ver­sus a bas­ket of ma­jor cur­ren­cies equates to about €300m in sales a year and €80m in earn­ings.

The com­pany on July 27 trimmed its profit and sales es­ti­mates for 2017, blam­ing the cur­rency and a stum­ble in agri­cul­ture.

Cove­stro: The plas­tic maker has based its 2017 fore­casts on an av­er­age ex­change rate of $1.10 per euro – weaker than where the cur­rency is now.

Chief ex­ec­u­tive Pa­trick Thomas told Bloomberg TV that it was the first time “in a decade or more” that he’d even talked about for­eign ex­change.

Pharma

Merck: The com­pany will face head­winds in the sec­ond half of the year, given the ad­verse cur­rency ef­fect and chal­lenges at its per­for­mance ma­te­ri­als unit, ac­cord­ing to CFO Mar­cus Kuh­n­ert. Achiev­ing fi­nan­cial tar­gets in the pe­riod “will not be a walk in the park,” he told an­a­lysts on Au­gust 3. – Bloomberg

PHOTO: AP

A man counts euro coins as he makes a pay­ment in Madrid, Spain. A rally in the euro this year is push­ing it to­wards lev­els that mar­ket watch­ers pre­dict will be painful for prof­its in the euro re­gion.

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