Published September 11, 2008
As £ plunges, S'pore firms get pounded
Those that didn't hedge find export receivables falling
By SIOW LI SEN

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(SINGAPORE) The free-falling British pound is hurting exporters and Singapore companies with investments and operations in the UK.
The pound is down 3 per cent against the Singapore dollar since the beginning of the month. It has slumped about 12 per cent so far this year, and more than a fifth in the past 12 months. Year to date, the pound has also fallen in the double digits against the other major currencies.
The UK's slumping housing market, tight credit and financial market conditions have put tremendous pressure on the currency across the board, said Callum Henderson, head of FX strategy, Standard Chartered Bank.
Temasek Holdings, for example, has major investments in the UK. Last year it raised its holding in Standard Chartered Bank to 19 per cent from 13 per cent and spent £pounds;975 million on a 2 per cent stake in Barclays Bank.
Business links between Singapore and the UK are very strong because the UK is the destination of choice in the EU for local companies. As at 2006, 81 per cent of investments in the EU had been channelled to the UK, comprising $15.6 billion.
The love affair is reciprocated. As at 2006, the UK was the largest foreign direct investor in Singapore, with $54.78 billion.
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Mohit Singh, HSBC director and head of corporate sales for global markets, said the weakening of the pound against the Sing dollar in recent weeks has had a significant impact on companies exporting to the UK.
A company that exports to the UK has had to deal with the pound sinking 22 per cent against the Sing dollar in the past year, he said. 'Firms that have not previously hedged against depreciation in the pound are now finding that their export receivables from the UK have deteriorated in value once converted to the local currency.
'In addition, Singapore companies with investments in the UK are now looking at a translation loss when the book value of the investment is translated to Sing dollars for balance-sheet reporting purposes.'
Recent heightened volatility in the currency market has made it more difficult for companies to effectively draw up budgeting and growth plans, Mr Singh added.
Listed companies that have seen profit from UK operations slashed include Sembcorp Industries, City Developments, Comfortdelgro and Singapore Food Industries.
Sembcorp has utility operations in the UK, which it bought for £pounds;103 million in 2003. Turnover from this business fell 15 per cent to $355.9 million in the first half of 2008, while profit plunged 51 per cent to $34.4 million.
A Sembcorp spokeswoman said UK operations contributed 13 per cent of group profit in H1. 'We do not expect movements in the pound sterling to affect the performance of our assets within the UK itself,' she said. 'Any impact in the translation of profits from pound sterling to Singapore dollar, when these contributions are consolidated at group level, may only be determined at year-end in the light of the exchange rate then.'
Sembcorp operates in several countries, which will help mitigate any impact overall, the spokeswoman said.
A Comfortdelgro spokeswoman said its UK Metroline turnover fell 6.6 per cent in Q2 because of the weakening pound. Excluding the foreign exchange impact, turnover would have been 5.3 per cent higher. 'We continue to look at introducing new routes, increasing mileage travelled and improving our operational efficiencies,' the spokeswoman said.
CityDev, which owns London-listed Millennium & Copthorne Hotels, said the weaker pound and the absence of tax credits dragged Q2 profit down 15.1 per cent.
As for UK companies heading here, there has been no indication of any concern over the slide in the currency, said Brigitte Holtschneider, executive director of British Chamber of Commerce, Singapore.
When companies go overseas, it is to find new customers and new markets, she said. Most UK companies set up in Singapore as their regional headquarters. 'You'd have all your income and running costs in those currencies,' said Ms Holtschneider.
How low can the pound go?
Said Standard Chartered's Mr Henderson: Technically the first level to watch for is $2.4373, which was the Sept 15, 2000, low. On Tuesday, the pound stood at $2.51.