The slide in the pound since the Brexit referendum vote almost wiped out annual profits at the family firm of George Osborne.
Osborne & Little, the upmarket wallpaper and furnishings company controlled by Sir Peter Osborne, his father, incurred currency hedging losses of £855,000 last year after sterling collapsed in response to Britain’s vote to leave the European Union.
Mr Osborne, the chancellor under David Cameron’s Conservative government, on whose watch the referendum was held, is among the company’s shareholders.
Osborne & Little made pre-tax profits of £73,000 on sales of £33.8 million in the year to the end of March. Without the hedging losses profits would have hit £928,000.
The company has a big US subsidiary and North America accounts for just over half of overall sales. Its revenues and expenses are denominated mainly in dollars. To minimise currency risk the company uses “forward contracts covering 40 per cent and 70 per cent of the forecast exchange exposures for up to two years ahead,” its accounts show.
This is a timing issue, nothing more.
Despite the costly hedging losses Osborne & Little reiterated that “if exchange rates stay as they are, in particular the exchange rate between sterling and the US dollar, then there will be a material benefit in the current year ended March 31, 2018”.
Quite so, they’ve hedged for 12 to 24 months ahead. You take the losses on your hedge as soon as the rates change. You collect the profit from having hedged over the 12 to 24 months as the cash rolls in. Net they should be flat minus the premium they paid for the hedge.
Sigh, The Times used to be better than this.