RE:RE:RE:RE:RE:U.S. DollarI didn't know that... So to take your points further, the 60%-36% = 24% of their business in other currencies will actually = more GBP's as the GBP dropped (presumably) vs the other basket of currencies.... So the GBP drop actually has a built in hedge on that front as well.
thanks for the clarification. I feel even better now than after I wrote that first post!
Stockcoach1 wrote: All very good points.
However only 36% of CXR's business in in GBP.
60% is derived from AMco but of that only 60% is derived from UK. The balance of AMco's revenue is in other foreign currencies. When considering that GBP was trading around 1.43 to the USD in Q1 and now it is at 1.37 it will not have a profound effect on 36% of business. In fact the projected growth in the low teens will more than offset this.
In addition to this, CXR is justified to raise prices in the UK to offset their costs. The warnings were clear prior to the vote " if you vote for Brexit, your cost of living is going up". They will not be the only ones raising prices due to this drop in GBP.
Today, CXR has the opportunity to take advantage of this currency drop and attack the UK debt as a priority. They can hold off on the US denominated debt till later when the GBP recovers.
wordless wrote: They report in USD so a stronger USD on their USD sales is irrelevant. 60% of the business is in GBP so lower GBP vs higher USD will serve to decrease their USD profit and Sales.
Their British business operating costs are in GBP so even though Their translated sales will be down, their GBP costs will be down so all that really matters is the profit and cashflow that they convert to USD will be lower... The shorts will focus on top line sales being down due to forex but they will neglect to mention all the GBP denominated costs will be down as well. Keep that in mind.
25% of their debt is in GBP - So the balance sheet debt number denominated in USD goes down, so the lower GBP almost makes it look like they owe less debt in USD... They also use their GBP cashflow to pay down the GBP debt so the currency value there is irrelevant.
Given they have 40% of their business in USD they use that cash flow to pay down the USD debt just as they use their GBP cash flow to pay down the GBP debt... Shorts will focus on having 75% of their debt in USD but 60% of their business in GBP but let's remember this debt isn't being paid off over a year. With free cash flow around $300mil a year and increasing over time, this is a 5 year process to get the debt ratios in a better balance. You always want some debt which is why I say 5 years...
Over the next few years, the USD cashflow will pay down USD debt and GBP cash flow will payoff GBP debt. The USD denominated sales and profits will be lower due to lower GBP but where will GBP be in 2-5 years when it might matter? Operationally the low GBP isn't a huge deal. It's just a reporting issue in the short run that shorts will use to their advantage.
if they lower guidance simply due to forex, people will trade on the headline. They won't focus on the points above. The 11% drop in the pound effectively lowered CXR's debt this morning.
Q2 should be fine as pound was in good shape. Q3 and Q4 might need to be revised due to forex now. I don't know.