2/3 e as I've got nothing against Persil but mostly b. I know we're in the same boat of having absorbed as much of the forex damage as we can and are now having to increase prices to our sterling customers, I can see a fair few of them switching to Euro invoicing just to avoid the need to be revising their buying price lists every few weeks.
Brexited | the worst threads live the longest
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In the latest episode of the United Hour Podcast, Nik (@Rood) is joined by CEO Duncan Drasdo and Financial Director Andy Green from the Manchester United Supporters Trust for a special episode on all things behind the scenes at Old Trafford including a brief history of MUST and their aims today, views on INEOS and Sir Jim Ratcliffe so far, and the Old Trafford regeneration.
Yes, you can clearly see how the EU made me so negative in that post, it does that to people. By requiting it you have made me start thinking about the EU again and now I'm mezzo, thanks.
My thoughts too
I was Brand Manager of Persil in my early career
Have you left Singapore? Noticed you said you had left your life in the SE Asia sun?
Probably a mix of A and B as I cant imagine Unilever dont have at least some hedging currency contingency so they could probably have held of rises a little longer - infact the tesco boss is ex unilever so he would probably have a very good idea about what they can absorb before needing to pass cost increase on... but long term if the pound is going to stick at these kind of rates or heaven forbid drop even lover then yes 10-20% increase in costs for imported goods is inevitable - and of course if tariff were to come in as well (hopefully not) then another increase on top.
Fuel costs will be going up - so of course delivery / logistic costs as welll - As a country with a big trade deficit there is going to be some big strain especially on poorer households where food utilities and fuel make up a higher % of spending... though its hard to have sympathy for any people in that position that voted for this as it was pretty obvious
Yup, returned to the UK 2 years back, my contract was up and the timing seemed right family wise with our daughter settling in after finishing Uni and aging parents on both sides suffering with alzheimers.I was Brand Manager of Persil in my early career
Have you left Singapore? Noticed you said you had left your life in the SE Asia sun?
But it's a bad idea to use it when the UK aren't even out yet, they have to keep it for potentially darker times.
I don't know any company that would do that? - your hedge is typically so you can absorb initial shocks whilst you renegotiate pricing with customers- you then re hedge once new agreements are in place.
Friday afternoon arrives, usually a fun time for currencies
I'll trust you on that.
Agree with this.
I was Brand Manager of Persil in my early career
PMA?
Not sure how much hedging a company like Unilever would have in place tbh- they must be exposed to 80% of the world's currencies as it is- they might just roll with that, rather than risk getting it wrong and exacerbating the impact.
I cant imagine they didnt put something in place after the referendum though... even we specifically did and we are nothing like Unilever size
Dont understand. What does that mean?
I dunno tbh, their sterling input costs obviously plummeted on the flipside.
Oh wow - you remember that?! Cool!
That was just before I joined the company but it was famous and very successful ad!
But each operating entity is different and would be largely exposed to only 2-3 currencies. I am quite sure the local treasury depts of all their entities will be hedging the fx risk and seriously so.
This about sums it up for me too. I worry for family and friends, but then some got suckered into voted out anyway, but the industry I'm in and the main supplier my little company deals with should thrive more now without the cheap crap euro shite on the market.
So I'm not overly concerned for myself so in that I'm still positive. But I just despair that it's the people who voted to leave that will suffer most, and it's largely those who want Labour back in but have just handed all the new 'power and control' right to the tories for the forseeable future (especially with the mess Labour have put themselves into) which will further feck them. That irony seems lost on them though.
He's saying that when we see the deal on the table we may actually want to stay. We went on to say that if at the end of negotiations we were not happy with the terms of leaving and wanted to stay the EU may be willing to change the rules to keep us.
They might have a centralised treasury team.
That is extremely unlikely to the point of being counter productive.
Anyways my point was that a company like Uniliver will always have fx hedge for the short term. They were just taking the piss with the price rises.
Its nearing 4 months since the vote, it this still considered short term? Would they have hedged against such a large drop?
So May has said no extra money for the NHS now. I wonder why and can we hear Boris's opinion on the issue, I wonder.
The beauty of it is that once youre hedged, youre hedged unless your counterparty goes bust or if youre trying to be a smartass by covering only a part of the fall. Typically short term would be 3-6 months but companies of the profile of uniliver cover themselves upto a year.
That said, we should see substantial inflation by next summer (possibly) running on until we are completely out of the eu and can start sourcing non-eu produce.
Non EU produce will probably be purchased in USD or equivalent so no savings on the exrate there.
Dont think you understood what I said. Non-eu produce does not have the EU agricultural protections priced in plus once out of the eu, UK can remove the tariffs currently imposed on non-eu stuff. That should somewhat mitigate the food inflation.
Also technically speaking, you are wrong on the USD part. Sourcing out side of eu will mostly be in either in Sterling or in local currency. That does not matter though as Sterling will have simillarly fallen to other currencies as well.
If they make a deal without tariffs.
On the USD part, have been trading for 30 years, most of the goods purchased outside the EU are purchased in USD or else the USD equivalent of the local currency. Just a small example the pound was Ghana Cedi 5.81 /£1 on 22nd June, now its Cedi 4.83/£1. A drop of 17% since the referendum against a 3rd world country. The prices will be linked to the USD (or the Euro in some cases) not the GBP.
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I'd assume that the counter party put in a stop loss, who wouldn't in such a volatile situation?
What you are saying has to happen before the option is traded by means of a second option being sold. I very much doubt unilever treasury would be that cavalier while hedging its risks.
Companies hedge fx risk only in hope that one day they will have their arse saved from such a volatile situation.
Inflation will inevtiably come, but not before next summer.
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The inflation stuff is a bit exaggerated.
Imports account for about a quarter of the British economy. Assuming the pound settles about 15% lower, then on the face of it, that raises prices of imported goods by 15%. But all of those increases won't automatically be passed on to consumers. Competition will see to that. If 8% is passed on, then the price of 25% of the economies goods will rise by 8%. Which represents an overall price increase of 2%.
So there will be an inflation blip of 2%. Since we're in a deflationary economic climate, it's likely to remain a one off event, and work it's way out of the economy quickly.
If everything else in the economy stays the same, including average wages, the average standard of living in Britain will fall 2% - due to a 2% rise in prices with no accompanying rise in wages, or, more technically, a worsening in Britain's terms of trade.
But the increase in the price of imports has other effects. There will be import substitution. Imports will fall over time. More importantly, British exports will get a tremendous fillip from a 15% price drop in world markets. Exports are likely to rise dramatically. Employment will rise. Increased competition for labour will cause wages to rise. It may well be that these positive effects will far outweigh the negative impact of the temporary jump in inflation.
I said as much, the sterling would have fallen by a similar % to any stable currency so it does not matter if things are traded in USD or not.
Maybe in your business like oil, things are traded in USD, but fmcgs and produce is surely not. Few years back I spent a summer faffing about on a currency desk where they were doing this sort of stuff.
Not just oil , everything. If a country can sell its produce to the USA or Europe or countries that base their currency on the USD or Euro why sell it at a lower price to the UK. Sterling will fall further still, they haven't left the EU yet.
The fall in sterling is likely to be more then 15% by all accounts. Also 2% is the BoE target in normal years, I think we might will have inflation running at 4-5% for the next few years. And that is after the initial shock that will arrive once article 50 is triggered.
You are right on the substitution part and it will mitigate some of the price rises. Also, I think we will on the whole consume a lot less of the imports that cant be changed like-for-like such as german cars and european holidays.
Regarding the benefit of devaluation part I am somewhat cautious. Its not going to be all roses on that front with so much incompetence in govt policy. Prime example being student visa rules just proposed, on a weak sterling we should be looking to get as many genuine students in as possible rather than telling them to bugger off.
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While I agree their will be an inflation shock before next summer and running higher than usual inflation for a few years as a results of leaving.
They hedge for everything from Yen and Yuan to Rupee and Rand. Which means they (mostly) deal in one of the two local currencies especilly the ones like unilever.
Think this through for a while and you might figure out that this doesnt even mean anything.
Incorrect. Thats just wrong. As I said, I have seen the workings of currency hedging by several giant transnational corps.
They hedge for everything from Yen and Yuan to Rupee and Rand. Which means they (mostly) deal in one of the two local currencies especilly the ones like unilever.
This is just absurd like your %age calculation from a couple of months back.
Think this through for a while and you might figure out that this doesnt even mean anything.
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I can't imagine any company would hedge against such a large movement, it costs does it not?
Yes it does cost. But you essentially sell all the downside risk beyond a certain point. Those buying an option on any pair with sterling would/should have priced in this risk. So it might have cost companies more to hedge due to the risk posed by the referendum in the first place.
I doubt any (non FS) company would then go in and pick back up a part of the downside risk. Its highly improbable not to mention unnecessary as the gain from doing such a thing would be pennies on the dollar.
Are we doomed then?