Global beermaker SABMiller had a strong financial year: the group’s net producer revenue grew by 5% and both EBITA (earnings before interest, taxation and amortisation) and EBITA margins increased, by 8% and 60bps respectively. However, adverse FX fluctuations provided a pretty firm headwind for the company with the strength of USD throughout 2015 denting SABMiller’s growth markets in Africa through rising import costs and squeezing profit margins. The USD rose by close to 10% over the course of 2015 and this resulted in an adverse effect to the tune of $1.05bln, amounting to 18% of their total EBITA.
The strength of the dollar in 2015 hasn’t persisted through the first few months of 2016 however, falling close to 5% since January 1st. This doesn’t mean SABMiller are out of the woods though – Alan Clark, SABMiller’s CEO, commented; “We anticipate that we will continue to face foreign exchange volatility and the results of certain of our key operations would be impacted by currency depreciation against the US dollar.”
Jeremy Cook, Chief Economist at World First, adds; “SABMiller’s struggles with the USD aren’t unique – many firms with accounts payable to the US will have had to deal with margin compression throughout 2015. From here forward, all eyes turn to the Federal Reserve as markets anticipate the second phase of the Fed’s tightening cycle. After lifting rates in December last year, markets have continued to push back their expectations of higher rates in the US. We see September as the next real opportunity for the Fed to move rates higher as the near-term risk of the UK’s EU Referendum keeps Janet Yellen et al at bay for now.”
Very few SMEs can relate to SABMiller’s ability to shrug off a $1.05bln currency hit, but there’s a lot to be learned from their failure to successfully hedge against currency volatility. Whatever the size of your firm, trading internationally can provide great opportunity, but also adds an additional risk to your business through future FX rate uncertainty. Hedging this risk allows you to focus on the opportunities of international expansion as opposed to staring at charts of currencies and worrying about what may come. World First are experts in international payments and currency hedging and can help you protect yourself against the volatility of trading overseas through currency options, forward contracts and more.
To find out more about how World First could help you manage your currency needs, give one of our friendly specialists a call today on 020 3432 6984 or visit worldfirst.com.