An Australian wine business with significant export sales to the UK (denomi
The shock Brexit vote in 2016 devalued GBP significantly and had a resulting impact on AUD equivalent revenues. As a result, the business reactively shifted its FX risk management approach to hedge as much as possible and for as long as possible.
Their main challenge was:
- Both approaches were reactive in nature and ineffective as the company was still unable to accurately understand and quantify the underlying FX exposures.
Rochford advised and implemented the following strategies:
- Analysed how FX risk is identified, quantified and forecasted within the business, which included mapping the costing/
pricing process from suppliers (growers) through to retail sales, as opposed to reliance on inadequate reporting derived from purchase orders/invoices being captured in an ERP system.
- Set meaningful budget rates and constructed an FX risk management policy that aligned with the commercial contracts and exposures of the business in a way that protected against significant adverse FX movements, but also provided sufficient flexibility to benefit from favourable moves through a balanced mix of FX hedging products.
With our support:
- We enabled the business to understand, capture and proactively manage their FX risk.
- We transformed FX risk management from a reactive cost centre to a more dynamic value-add process, which primarily protects AUD cash flow while facilitating some out-performance when market conditions are conducive.
- The predictability of internal cash generation has been significantly improved providing increased confidence in planning and executing business improvement strategies over the medium term.
- Additionally, the stabilisation of EBITDA has enhanced the attractiveness of the business to potential outside investors.