Forum Archive Index - December 2001

[donkeyboy <donkeyb1@excite.com>]

I have to disagree with veiwpoints comments re: SAN FX losses.

FX hedging is a simple business carried out for basic business and
management reasons. Veiwpoint is not right in describing hedging as a zero
sum game - unless he believes that all parties to the contract are equally
risk averse - in business certainty allows additional value to be added.

Sanfords FX policy (which is publically stated and included in EVERY broker
report) is to run a rolling hedge based on net exposure to the US dollar. It
is roughly to have net exposue to FX hedged 20% three years out, 50% 2 years
out and 90% out.

Because the $NZ died during the past three years, the average price of
currency contracted forward as at 31 septenmber was 0.52. It is incorrect to
say that SAN established its currency position in sept. All these facts are
detailed in the notes to the accounts.

As these forward contacts rolled off the lsses associated with them get
booked and this created the majority of the losses as the currency was now
0.40 roughly. However they are most appropriate deducted from the revenue
line or the gross profit line as it represents a reduction in revenue or an
opportunity cost.

The purpose of hedging is to gain some certainty re cashflow so that the
company can plan, market, buy boats , contract with offshore players, buy
quota.

As SAN sell fish in US and buy fuel and boats in US and pay contractors in
US, it only hedges its net exposure. 

Tis policy is totally different to the undisaplined puts taken by FAP.

If you are looking for a reason for the SAN price peeling off - look to the
lack of free float, lack of liquidity and disappointment that excess
inventories (both from quota rollover and fish in the fridge) from the
earlier period were not realised as expected.

cheerio







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