INDUSTRY NEWS
CURRENCY STRATEGY IN 2018
Treasury Management within SMEs can benefit from bringing a Non-Executive Director (NED) with global board experience to the table
A NED can bring constructive challenge, independent views, objectivity and a strategic perspective.
Businesses in the Renewables Sector that are planning major non-£ purchases in the foreseeable future need to review their appetite for risk in dealing with their foreign currency exposure. Despite the enthusiastic media ‘spin’ regarding progress in ‘Brexit’ negotiations, it is clear that the global economic headwinds that faced the UK in 2017 have not gone away.
COST/BENEFIT APPROACH Decisions over approval of major projects are usually based on a ‘cost/ benefit’ approach. Any project that is expected to ‘payback’ [recoup its original spend] within an 18-24 month period is unlikely to cause too much controversy around the Board table. In retrospect however if a major collapse in the purchasing power of Sterling
occurs during the period between approval of the project and payment for imported items, the favourable equation of cost/benefit can look very different.
The post EU Referendum fall of around 15% in the £ as a result of the immediate concerns of the markets over the uncertainty of a Brexit process has not unwound yet and seems unlikely to at the time of writing. Indeed some major financial houses are expecting the £ to fall further against both the $ and the € during 2018.
In practical terms, where a €1.3 million purchase would have translated into £1m before the Brexit vote at €1.30/£1, that same piece of equipment would now cost £176’000 more at €1.105/£1. That sort of step change can not only change the perception of the benefits of any
project in a SME environment, it could cause serious working capital ramifications.
WHAT TO DO
So what can be done? Banks have been offering currency management services for decades and continue to do so. Yes, their quoted rates will include a margin over spot but as they deal in £Trillions daily those margins will be small. Currency trading is part of their core business after all.
For SME businesses however, the ability to make money out of currency markets is minimal – the only certain thing is the need to convert an amount of currency as a result of normal business. That is defined as an exposure which in Risk terms needs to be covered. One can either buy/ sell now, later or during a period. The more complicated the deal, the costlier it will become.
Once a business has a banking relationship that includes support from a Treasury/Currency team, it’s effectively dependent upon that Bank to administer the exchange process. It is vital that the Bank’s team should understand the SME, have an awareness of the significance of any deal and advise accordingly. If your business has a Non-Executive Director with decades of FX experience, utilising that could help your Bank to help you to significantly ameliorate the Risk of your Currency Exposure.
JAD Financial
SERVICES
www.windenergynetwork.co.uk
7
SCAN/CLICK
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69
