High pound impacts Croda, Abcam and others

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Today Croda issued their interim results for the six months to the end of June. Croda is a speciality chemicals company and less than 10% of its revenue arises in the UK. A very substantial proportion comes from the USA and from other dollar denominated sales elsewhere. The high pound (currently over $1.70 to the pound) is having a big impact on companies such as Croda. In the six month figures revenue in constant currency terms is up 2.5% and operating profit is up 0.4%. But in sterling revenue fell 4.5% and profit is down 5.0%.

A lot of smaller and specialist technology companies export a large proportion of their sales so we are likely to see more such reports. This is one reason why share prices of these companies have been drifting down in anticipation in recent weeks, and Croda fell another 2% after the aforementioned announcement.

Another company reporting today with a “Pre-close Trading Update” was Abcam, another very international business (they sell antibodies primarily). Although they said that adjusted profit before tax will be slightly ahead of consensus expectations for the year, they did spend a lot of time talking about “constant currency” revenue growth and in sterling terms it looks like revenue will be somewhat below forecast. Abcam do have some of their costs in dollars which may have protected the profit figure. The Abcam share price rose on these figures, possibly in relief that they had not been more impacted by the high dollar rate.

Of course it’s not just smaller companies that are likely to see the impact of a high pound though. Major oil and pharmaceutical companies may also be affected – the dollar is of course the currency in which oil is usually traded.

Investors should perhaps look at their portfolios to see if they have companies likely to be affected by the exchange rate, but it may be a bit late to react unless you think the pound will rise further. Unfortunately forecasting the direction of exchange rate movements is a mugs game so far as this writer is concerned so whether it will move further up or reverse direction I would not like to say. But it is a good time to take a vacation in the USA for UK residents.

Roger Lawson

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