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Capital markets

Strong euro weighs on German corporate earnings, causes 2013 revenue and profit fall

Consultancy group Ernst & Young says German corporations suffered from falling currencies in emerging markets and a stronger euro to the US dollar in 2013. On average, corporate revenues and profits fell, it has found.

The strong euro had left significant traces in the 2013 balance sheets of Germany's biggest corporations listed in the DAX blue-chip stocks index, consultancy group Ernst & Young (EY) said in a survey released Thursday.

As the euro rose about 3 percent to the US dollar, 5 percent to the British pound and a staggering 26 percent to the Japanese yen in 2013, both revenues and profits of the 30 DAX-listed corporations suffered, EY said.

Last year, overall revenues of the companies dropped to a total of 1.23 trillion euros ($1.69 trillion) the survey found, which was 0.1 percent less than in the year before. Operating profits, however, slumped even deeper due to currency effects, coming in at 104 billion euros, or 2 percent less than in 2012.

Not counting the effects of the stronger eurozone currency, German corporate revenues, for example, would have been about 1 percent higher than in 2012, EY calculated.

“Hardest hit were corporations with a strong presence in growth markets outside of Europe,” said EY expert Thomas Harms, who compiled the survey.

Capital flight - investors pull out of emerging economies

Harms also noted that currencies of emerging economies such as India, Turkey and Brazil, as well as those in so-called frontier markets like Indonesia and Malaysia, slumped even deeper to the euro than those of advanced economies.

Auto maker BMW, as well as chemicals giant BASF and logistics firm Deutsche Post DHL were hit hardest among the 30 DAX-listed companies, which, on balance, garner 42 percent of their revenues in foreign markets, Harms added.

Ernst & Young advised the companies to hedge their revenues against further turmoil in currencies markets in 2014.

“Since we've seen currencies depreciating further in the first few months of the year, the revenues and profits of globally active German corporations will remain under pressure in 2014,” Harms said.

Harms also said, however, that staying invested in global growth markets would pay off in the long run despite short-term losses. This was because revenues there were expected to rise disproportionately on the back of higher growth.

uhe/lw (Reuters, dpa)

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