Falling FX: Australian business exposed to profit warnings risk

SYDNEY - Aug. 26, 2015 - PRLog -- In the last 12 months the AUD to USD has fallen by 24%. Due to the nature of FX this means that the cost of items has actually increased by 31%

Many companies have been unable to maintain margins and earnings or have tale prices rises only to see competitors hold their price points or increase their prices by less than 2/3 of the actual cost increase.

Pricing Insight research shows that up to 80% of Australian companies have been unable to manage the FX movement and have experienced margin erosion. Some companies such as Hills Industries actually increased revenues from $415M to $428M from 2014 to 2015. Yet net profit after tax profit fell from $51M to minus $29M.   That’s a change of $22M or 43%.   Hills has had some serious business model challenges and impairments however that result could have been minimised by focusing on selling  less but at higher margins. The company has failed to manage pricing and margins.  The fallout being the sacking of CEO Ted Pretty by the board earlier this year.

The irony in a falling FX market as cost increase the strategic decision needs to be made to protect cash per unit margins or percentage margins. In other words to maintain cash per unit margins requires less of a price rise than many realise.

The other key consideration is how you take that price rise.   Do you place a blanket 3-5% price increase across all products and services to all customers? Or can you segment the market and your product / service portfolio to optimise revenues, volumes, pricing and margins?   The answer is that all companies need to optimise pricing at a granular level at EBITs sink into single digits, a single point of margin can add up to 12% earnings growth.

Now is the time to focus on your margins at a detailed and granular level

To learn more about pricing visit http://www.pricinginsight.com.au/

If you would like to obtain a guide on pricing in a falling FX market please contact Pricing Insight on 02 8226 8621 or email fx@pricinginsight.com.au