Question

Name one company that benefited and one company that suffered due to the slump in the British Pound post Brexit. What was the type of exposure that resulted in the profit or loss? Did the companies not hedge?

Answer 1

Most of the UK exporters would have benefited due to slump in British Pound post exit. An example is:

Norbrook Holdings:

• the Newry-based pharmaceutical firm,
• Exporter of key drugs such as Procaine, Benzocaine, Flunixin, Ivermectin, Carprofen and Oxytetracycline.
• Approx revenue = $ 300 mn
• Benefited largely due to slump in British pound.
• Saw an increase in profit by 36% in the last year.

UK manufacturers / real estate builders who import, suffered due to slump in British pound. An example is:

Persimmon:

• House-building company, headquartered in York, England
• Revenue around Pounds 3,800 mn
• Has grown significantly using organic and inorganic route
• Lost around 5% of its market value due to slum in British Pounds

Type of exposure: More than 80% of the business is exposed to foreign exchange fluctuations. An exporter gain due to decline in domestic currency while an importer suffers. So, the type of exposure that led to profits for Norbrook Holdings is export of pharmaceutical drugs. Type of exposure that led to loss to Persimmon is import of building materials.

The companies might have hedged but the story was nearly one sided. We all were aware than Pounds will suffer a slump due to Brexit. If the derivatives market also know the results in advance, the derivative instruments also adjust directionally. So hedging would not have helped much.