Yesterday, Wolseley, the world’s largest heating and plumbing materials supplier and member of the FTSE-100, reported a £35 million increase in trading profits driven in no small part by a fortuitous quarter for exchange rate movements, according to their Q3 Interim Management Statement. We’ve dug a little deeper into their results to find out how this occurred, and what small businesses can learn.
As a global business, Wolseley expose themselves to currency risk on a daily basis and as a company that report their earnings in UK sterling, this currency risk materialises in one of two ways: either contributing to or subtracting from its bottom line. Wolseley’s largest unit geographically is the USA, from which they derived 66% of their revenues in the three months from February 2016. Across this period, GBP/USD fell to its lowest level since the Global Financial Crisis in 2008 as uncertainty surrounding the UK’s EU Referendum drove investors out of the sterling and into safe havens such as the US dollar and the Japanese Yen.
Fortunately for Wolseley, the weakness in the pound swelled the value of their US earnings which, when repatriated for their latest set of accounts, translated to a surge in trading profits to the tune of £9 million on FX effects alone. This, combined with the £31 million rise in profits outside of FX, led to a gain of 17.4% when compared to year previously.
Jeremy Cook, Chief Economist at World First, explains; “Wolseley, and many other UK exporters, were able to take advantage of the weaker pound earlier in the year and the fruits of their labour have clearly paid off. Locking in beneficial exchange rates via forward contracts are one way in which these gains can be extended, allowing future transactions to be executed at a pre-agreed rate for a pre-agreed period of time even if the exchange rate moves against them, as has happened since March as markets take stock in the belief that the UK will vote to remain in the European Union.”
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.