Strong pound will slice pounds 60m off profits, warns Guinness

Guinness yesterday became the latest British company to fall victim to the strength of the pound, warning that the recent appreciation of sterling would hit its 1997 profits by pounds 60m. Shares in the Johnnie Walker to Gordon's gin group slipped 5p to 431p, just 1p off their low for the past year.

News of the currency hit followed downgraded forecasts at several other significant exporters including ICI and British Steel. Shares in Rolls- Royce have also been weak as a result of fears that the rising pound would hit profits.

Before yesterday's announcement, part of an otherwise cautiously confident trading statement, analysts had been looking for consensus profits this year of pounds 1.02bn but few now expect the company to breach the pounds 1bn mark. For the year to December 1996 expectations average about pounds 959m, in a year when currency hedging is expected to have resulted in a small pounds 15m positive impact.

The pound's advance began in August last year. From an index low of 84.0 measured against a basket of major currencies, its trade-weighted index shot up to 96.1 by the year-end, a rise of more than 14 per cent.

Yesterday, sterling was trading at 2.66 marks and $1.67. The pound started the new year at $1.712, its highest level since it fell out of the European Exchange Rate Mechanism in late 1992.

Despite currency concerns, Tony Greener, chairman of Guinness, made positive noises about current trading: "I said at the time of our interim results that we are confident the cumulative impact of our focused strategy and increasing investment will deliver long-term growth. I am pleased that our 1996 results will represent steady growth in profit performance, as promised."

The company said trading at United Distillers, the spirits subsidiary, continued to improve. Volumes increased by 1 per cent in 1996 compared with the previous year, with single malts and de luxe Scotch whiskies the best performers. In line with the rest of the industry, Guinness has attempted to stimulate sluggish world-wide demand with increased marketing expenditure, which it said increased by 10 per cent last year, 15 per cent in the second half.

Price increases, the other bugbear of the spirits industry in recent years, remained modest with rises of only 3 per cent in the best markets leading to an overall increase of 1.5 per cent for the division as a whole.

Guinness Brewing, the traditional stout ale core of the group, saw better volume rises with Guinness Stout up by 5 per cent and Draught Guinness 8 per cent higher. Again the increase was acquired through heavy marketing spending, with 10 per cent more put behind advertising stout. The roll- out of Guinness Irish Pubs continued with 1,200 now operating under the marketing umbrella.

Cruzcampo, the Spanish subsidiary where lack of consumer confidence and political uncertainty has held back profits, continued to languish with a further 4 per cent fall in the beer market and a switch from high- margin on-premises sales to lower margin take-home trade.