Brazilian turmoil to lop 12% from Pilkington profit
Thursday 28 January 1999
The group, which has a substantial operation in Brazil, said in a statement that the sharp devaluation of the real, the country's currency, could lead to a pounds 15m charge on this year's earnings, expected to be around pounds 125m.
Pilkington reassured the market that overall group profitability would be maintained, noting that "results for the nine months, at constant exchange rates, were in line with management expectations". Sources said Pilkington was still on course to meet its goal of improving last year's pounds 120m profits, but they cautioned that the negative impact of the crisis could increase if the real fell any further.
The market, which had been worried by the effects of the Brazil crisis, took heart from the statement and pushed the shares 3p higher to 54p. "The fact that the currency impact was no worse than expected has given a bit of a fillip to the shares," one observer said.
City analysts said that so far Pilkington was only suffering currency losses and had not seen a slump in demand for its Brazilian glass. The company derives about one-third of its profits from Latin America, and about 3 per cent from Brazil, where it produces glass for construction and car makers. However, industry experts warned that if the 35 per cent fall in the value of the real triggered a recession in Brazil, Pilkington would be hit hard.
The warning fuelled fears that other companies with Latin American operations could suffer. Recent research by HSBC, the investment bank, shows that the cigarette group BAT was one of the UK companies with the largest exposure to the region. Cement maker Blue Circle, Monument Oil & Gas and textile company Coats Viyella have a number of interests in Latin America.
However, Richard Batty, global strategist at HSBC, said UK companies were well-cushioned against Brazilian fall-out. "The overall exposure is fairly small. American firms are much more exposed and some Spanish firms have got huge operations in the region."
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