Strong sterling casts shadow over Reuters
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.Reuters, the electronic financial information group, saw profit forecasts sharply downgraded after warning that the pound's strength could severely restrict growth prospects. The shares, which hit a high above 800p in October, slid below 600p at one stage yesterday, before settling 16p down at 626p.
The group calculated that exchange rates ruling at the end of last year would have sliced pounds 230m off sales and around pounds 100m from operating profits had they prevailed throughout 1996. Sterling strengthened by 19 per cent against the German mark and by 9.3 per cent against the dollar last year.
Peter Job, chief executive, said: "If sterling's strength continues, it will severely restrict prospects for reported revenue and earnings growth in 1997." He also warned that moves to offer attractive prices to encourage existing customers to switch to Reuters' new 3000 range of information terminals would be a drag on revenue growth this year. "This will make it difficult for the group to better the underlying revenue growth rate achieved in 1996," he said.
Lorna Tilbian, media analyst at Panmure Gordon, said the impact of the strong pound had prompted her to cut her current-year profit forecast from pounds 779m to between pounds 710m and pounds 720m and the 1998 prediction from pounds 915m to pounds 780m. But she stressed that the currency problems could easily reverse. Stripping that out, the group was essentially saying it would match last year's underlying sales growth of 8 per cent.
The downgrades came despite the announcement of a 17 per cent rise in pre-tax profits to pounds 701m for the 12 months to December, in line with expectations. The total dividend is being raised a fifth to 11.75p, after a final of 9p, and Mr Job said the strength of the group's underlying business meant Reuters should be able to maintain double-digit dividend growth this year.
However, the group was silent on any further plans to pay back to shareholders some of its surplus cash, which rose another pounds 200m to pounds 1.05bn in the year. Last October, proposals to hand back pounds 613m through the creation of an innovative special dividend share were scuppered by the Chancellor, Kenneth Clarke, on the eve of their being given approval by shareholders, when he ended certain special tax benefits for institutions.
The group said it would lobby for changes to bring the UK more into line with the greater flexibility on capital changes allowed in the US. But Robert Rowley, finance director, said: "We don't think our shareholders would want us to be in the vanguard of the pack at the moment. We are watching to see what others do."
Investment Column, page 19
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments