12 MARCH 2015
Selling to/buying from European countries
Practical Implications for UK traders as UK £ strengthens against Euro
One of the major topics currently being raised frequently in my work with a wide range of UK traders is the implication on revenues and profits as a result of sterling’s strengthening against the Euro. While financial people frequently spend time and effort reporting exchange rate movements, most of the time the pattern of significant movement between the £ and € is gradual and over a considerable time period. UK traders – who tend to be higher end niche producers – have coped reasonably well with these changes in the last 3 – 4 years.
However, a sudden ca 20% strengthening of the UK £ within a 12 month period is a more unusual occurrence and triggers a variety of happenings.
Below is a summary of what is likely to be happening on sales and procurement at your company. On sales, the dilemma of whether to increase (Euro) prices to maintain margins (balanced against losing customers and orders) has to be viewed against your opinion as to whether the UK £ will continue to remain strong in the longer-term ( 1 year+). There is little point in trying to push sales price increases through purely based on only a short-term strengthening of the UK £.
|You are:||Your Euroland customers||Your Finance Director||Your options|
|Selling in Euros||Won’t be thinking about the UK £||Should already be worried about the 20% fall in sales margins||Increase Euro prices using £1 = Eur 1.45|
|Selling in UK £||Possibly already complaining about your prices||won’t have noticed any difference||Reduce prices, cease supply, find new customers at current UK £ prices|
|You are:-||Your Euroland suppliers||Your Finance Director||Your options|
|buying in Euros||Won’t be thinking about the UK £||is pleased about prices coming down by up to 20%||Seek longer term price agreements in Euros|
|buying in UK £||will be enjoying up to 20% price gain||should be pushing your purchasing dept to reduce your UK £ buying prices to reduce your UK £ buying prices||Seek to push your £ purchases prices down with suppliers, or switch to buying in Euros|