Profit growth to suffer in sterling drop

Profit growth at Irish companies will suffer this year due to sterling's fall against the euro but the effect will not be too dramatic.

Stockbrokers Goodbody says Britain accounts for 24 per cent of the operating profits of Irish listed companies, with nearly 90 per cent of that coming from UK-based subsidiaries.

Analyst Mr Liam Igoe says sterling, which has weakened by 8 per cent in the past six months, will continue to lose ground on the euro, falling as low as 70p.

He estimates that every 5 per cent fall in the currency will knock 0.8 of a percentage point off profits.

Earnings per share at Irish-listed companies are forecast by Goodbody to grow by 9.4 per cent.

However, he expects a recovery by sterling in the second half of the year to somewhere between 64p and 66p against the euro.

Of the leading Irish shares, leaving aside sterling-quoted Viridian, Ryanair and Anglo Irish Bank are seen as having the greatest exposure to currency movements.

More than half Ryanair's earnings are generated from flights operating out of Britain while Anglo Irish generates 41 per cent of profits from its British operations.

But there are factors limiting the impact of a slide in sterling, according to Goodbody.

Ryanair would benefit from increased continental business to the UK and also from dollar-denominated fuel, which has become cheaper as sterling rose against that currency in recent months.

Anglo, like other Irish financials, benefits from hedging and matching of assets and liabilities in its sterling market.

Smaller Irish companies have larger exposures to the UK - 33 per cent of operating earnings on average - but also adopt a strategy similar to the financials.

Abbey National is most vulnerable in this sector, according to Mr Igoe, with a 5 per cent sterling retreat costing it 4 per cent. Greencore, Grafton, DCC, Jurys, IAWS and Kingspan are others with substantial exposure.

Mr Igoe believes the negative effects of sterling exposure will be largely offset by measures adopted by the relevant firms.