Richard Poulton

New research from AFEX, one of the world’s largest non-bank providers of global payments and risk management solutions, has found close to half (49%) of Australian SMEs are not currently managing their currency risk, which could leave them unnecessarily exposed in the year ahead.

This is particularly concerning as the majority (62%) of Australian SMEs predict increased volatility in currency markets this year.

AFEX’s third annual Currency Risk Outlook Survey polled more than 650 financial decision makers at SMEs and corporations from across the globe on their attitudes and behaviours around global trade, foreign exchange risk and methods for managing it.

AFEX Asia Pacific General Manager Richard Poulton said the research highlighted a real disconnect in the expectations and actions of Australian SMEs.

“It’s concerning to see so many Australian SMEs predict a volatile year, but fail to implement a currency risk management strategy. Importers and exporters really should not risk cross-border trade without profit protection,” Mr Poulton said.

“2016 was full of surprises and too many SMEs were unnecessarily exposed to the impacts of Brexit and the U.S. presidential election. 2017 is already shaping up to be another year of uncertainty, so SMEs should do everything in their control to protect their hard-earned profits.”

The survey found a number (21%) of Australian SMEs even planned to pass on currency risk to their suppliers and customers in the coming year.

“For small businesses without the scale to absorb the impacts of a volatile dollar, they see no other option but to increase prices to protect profit margins. An effective currency management strategy could eliminate this concern and ensure SMEs aren’t priced out of the market.”

SMEs anticipate increased cross-border trade

The survey found over half (52%) of Australian SMEs expect their levels of international trade to increase in the coming year and foresee market volatility (58%) and global economy policy uncertainty (48%) as key challenges for expansion.

Respondents indicated the United States, China and Western Europe will be key markets for trade growth in 2017.

Mr Poulton said opportunities for Australian SMEs to engage in global expansion and trade had never been greater.

“Not only is customer demand high, but new technology is making international shipping and logistics easier and more accessible than ever. A currency management solution is one more way that SMEs can reap the benefits of global trade and allow them to focus on running their business.”

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AFEX Head of Dealing Australia, David Greene, said the predicted range of the AUD against the USD in 2015 currently sits from a low of 0.70 to a high of 0.92, or 22 cents, according to the experts.

“The profits and cash flow of Australian businesses reliant on purchasing or selling goods in international markets are highly vulnerable to this large swing predicted for the Australian dollar. Without ongoing prudential management of this volatility, businesses may have to increase prices or revisit their budgets.  These uncomfortable adaptations are disruptive to any business and can be stressful to implement,” said Mr Greene.

The AUD has moved 11.5% since August alone, during which time AFEX has seen a 144% upsurge in demand for its tailored risk management solutions from Australian SMEs as compared with the previous six months.

According to Mr Greene, this level of volatility is only expected to increase in the New Year, in line with anticipated interest rate hikes in the US as soon as June 2015.

“The major currency risk event is and will continue to be the anticipated interest rate hikes in the US. Improvements in the US economy have been consistent and well documented, with impressive gains in the labour market, consumer sentiment at multi-year highs and healthy growth consolidating above 3% year on year. In this context, pressure has been mounting to begin a round of monetary policy tightening. This is the key reason for the recent appreciation of the USD against most currency pairs,” said Mr Greene.

“Uncertainty around the central banks in the US, Europe and Japan will also be on the radar for 2015 and will add significantly to volatility levels across all currency markets,” he said.

Mr Greene added that all Australian SMEs with exposure to international markets will be exposed to this volatility, irrespective of size or if they are importers or exporters.

“As to the degree of exposure, this can only be determined by how well prepared those SMEs are to a changing landscape. Businesses that perform best when volatility is high are those that have a process in place to manage the risks associated with those conditions,” he said.

AFEX urges SMEs to consider risk management defences

To help protect themselves, AFEX is encouraging Australian SMEs to set more realistic budgets which accommodate market volatility. AFEX provides tailored risk management and payment solutions to nearly 8,000 Australian SMEs; a client base which has doubled in the last two years.

Richard Poulton, AFEX General Manager Asia Pacific, said while December was typically the time of year when most businesses put hedging strategies in place, it should really be part of their ongoing strategy.

“Currency management strategies implemented throughout the year allow our clients to concentrate on day-to-day business, safe in the knowledge that they have managed forex risk,” he said.

“Ultimately, forex-exposed businesses should also weigh up the risks of what an adverse currency change could do to cash flow and profit. If they can stay afloat through the worst case scenario then the spot market is right, but for the great majority of SMEs a risk management structure is the most conservative approach,” concluded Mr Poulton.

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Richard Poulton

A new deal, signed between AFEX, one of the world’s largest non-bank providers of global payment and risk management solutions, and Australia’s export credit agency, Efic, will offer Australia’s export businesses better protection against adverse currency movements.

Under the new partnership, Efic will guarantee exporters’ foreign exchange facilities on the AFEX platform, enabling the foreign exchange specialist to increase the trading limit for clients. With increased limits, those clients will be able to protect more of their export contracts and better secure profit margins.

A foreign exchange facility can help exporters protect themselves from exchange rate fluctuations by locking in exchange rates and allowing them to hedge their currency exposure.

“We’re delighted to have agreed this partnership with Efic, a part of the Australian Government’s Department of Foreign Affairs and Trade. It’s a powerful endorsement of the quality of our offering and strong position in the market,” said Richard Poulton, Asia Pacific General Manager, AFEX.

“Australia relies heavily upon its export markets and it’s vital that businesses targeting overseas sales have greater cashflow certainty and are well protected against ongoing and inevitable currency volatility.”

Alex Fernandez, Efic’s Head of Alliance & Product, SME, said, “We’re excited to offer Australian exporters even more support and protection in their international activities through this new partnership with AFEX, a trusted player in the foreign exchange market.”

AFEX continues to grow rapidly in Australia, roughly doubling its client base to 8,000 businesses in the last two years alone. It opened the first of three offices in Sydney in 2005, with Perth and Melbourne following in 2009 and 2011 respectively.  Recent currency volatility demonstrates the need for the sophisticated payment and tailored risk management expertise AFEX is renowned for.

Measuring the effect of AUD currency volatility

The AUD / USD currency pair has moved more than 15% from the high to low during the last 12 months, more than enough to wipe out profit margins for many export businesses should they not put in place a hedging strategy.

For example, an exporter who took an order for USD 100,000 at the beginning of the year when rates were around 0.89 but was only taking receipt of payment now would be over AUD 6,000 worse off due to exchange rate movements.

AFEX offers a range of solutions, such as locking in the exchange rate payable on future transactions, giving the business certainty as to its profits and the margins achieved.

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AFEX, one of the world’s largest non-bank providers of global payment and risk management solutions, announced three strategic hires in Australia this morning to support its explosive growth in this key market.  AFEX now services nearly 8,000 clients from offices in Melbourne, Perth and Sydney, up from 4,000 in 2012, catering to a broad swathe of clients in the agriculture, energy, and mineral industries in particular.

The hires include Justin Dooley, Options Account Executive and Jodie Gwynn-Jones, Enterprise Account Executive, both based in the Sydney office. Darren Tomich has also been appointed as an Options Account Executive in the Melbourne office. The trio bring a wealth of experience from major banks and FX institutions, including the likes of Travelex, Western Union and the Commonwealth Bank of Australia. They will focus on continuing to deliver AFEX’s signature high-touch, dedicated service to its expanding roster of clients in the world’s 12^th largest economy.

“These strategic hires bring more than 50 years of combined industry experience to AFEX and their knowledge of the payments and FX landscape in Australia will serve clients well,” said AFEX CEO Jan Vlietstra.  “It’s an exciting period of growth for AFEX in the Asia-Pacific region and we’re happy to welcome this talent into the fold.”

AFEX opened the first of three Australian offices in Sydney in 2005, with Perth and Melbourne following in 2009 and 2011 respectively.  Australia has a large import and export base, which requires companies operating on a global scale to secure the sophisticated payment and tailored risk management expertise AFEX is renowned for.

“Since 2005 we’ve been delivering our signature payment and risk management solutions to Australian companies engaged in cross-border commerce,” said Richard Poulton, AFEX’s Asia Pacific General Manager.  “AFEX maintains the same high standard of client service and support today and we’re proud to have Darren, Jodie and Justin continue that legacy while eyeing future growth in the Asia Pacific region.”

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Richard Poulton

A new global survey by AFEX, one of the world’s largest non-bank providers of global payment and risk management solutions, shows almost half (45%) of all Australian businesses are expecting an increase in international trade in the year ahead, while the majority do not hedge this risk frequently.

AFEX’s Currency Risk Outlook polled businesses in the United States, United Kingdom and Australia on their perspectives on currency risk and the strategies currently used to manage this – Australian businesses were included in this sample, with 23% in the manufacturing sector and 17% in the retail sector.

According to the survey, the international spotlight remains on the Chinese and US markets, with 35% and 30% of Australian business owners predicting growth in these regions respectively. Other growth regions include Western Europe at 16% and Asia (excluding China, India & Japan) at 12%.

AFEX’s Asia Pacific General Manager Richard Poulton said as 1 in 10 Australian companies currently have between 91 and 100% of its revenue exposed to currency risk, this expected growth indicates managing currency risk is a more important issue than ever.

“While many business owners recognise the challenge in mitigating currency risk, the majority do not regularly employ FX strategies. However, as business owners realise the very real impacts of volatility after the fluctuations of the Australian dollar over the past 12 months, this sentiment is changing,” Mr Poulton said.

While 85% of Australian businesses do not hedge regularly, 46% expect to increase their use of FX strategies in 2014 with the focus on reducing the risk of loss on currency movements (50%), and mitigating downside risk, with some potential upside if currencies move favourably (21%).

Hedging strategies to provide business certainty for SMEs

As a specialist within the small medium enterprises (SMEs) space, AFEX has noticed that while business owners realise the role of currency risk in affecting margins, some remain hesitant in employing hedging strategies because of a lack of deeper understanding and the costs and resources involved.

“Devising a hedging strategy is important, as there are additional and often unforeseen risks for businesses as they increase their presence in global commerce,” Mr Poulton said.

“When you consider that even large cap companies might experience difficulty in managing currency fluctuations, the effect of volatility is compounded for smaller businesses which might not benefit from the same economies of scale.”

In addition to currency volatility (49%), the other key challenges for businesses conducting international trade is finding the right suppliers and customers (25%) and having the ability to make and receive payments (7%).

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AFEX launched an enhanced version of its online global payment platform.

AFEX, one of the world’s largest and fastest growing non-bank providers of foreign payment solutions, has launched an enhanced version of AFEXDirect – its leading online global payment platform.

The enhanced version incorporates client feedback to better integrate with enterprise software packages, a consolidated overview of currency exposure to simplify international treasury management and improved search and display functions.

AFEXDirect builds upon its strengths as a comprehensive international payment and risk management solution, arming clients with the latest tools to best support their international treasury function. As an increasing number of mid-sized businesses engage in commerce across borders, managing and mitigating currency risk is of utmost importance.

“In 2013, the AUD/USD has traded between $0.8850 and $1.06, making international commerce across borders difficult to manage for Australian businesses. Our new platform ensures our clients are even better equipped to navigate FX volatility, providing greater certainty for Australian businesses and helping CFOs and treasury teams manage risk,” Mr Richard Poulton, Asia Pacific General Manager of AFEX said.

AFEX processes payments in over 200 countries with a comprehensive suite of currencies available 24 hours. The latest release was engineered to improve transaction processing time, while decreasing administrative workflow.

Other key features include an improved home screen layout with currency funding balances, the ability to schedule payments to beneficiaries directly from the funding balances, streamlined report and search capabilities and an improved file upload tool with customised ERP integration potential.

“The enhancements of AFEXDirect draw upon the latest technology while ensuring that the platform remains easily navigable, resulting in a seamless client experience,” said Guido Schulz, Global EVP Strategic Management at AFEX. “The overarching feedback from clients was around further simplicity and automation. Our new payment upload tool for example achieves this by processing multiple fund transfers without the need to manually input each transaction, ultimately saving time for clients to focus on conducting their business.”

Exponential growth in Australia

AFEX launched its first Australian office in Sydney seven years ago and now employs 70 people, with offices now in Perth and Melbourne. The Australian arm of AFEX is now the second largest operation globally.

“The expansive growth of the business is a testament to our staff and business model which aims to combine the efficiencies of technology with the added communication channel of a dedicated person overseeing client accounts. The enhancements of AFEXDirect will ensure our global payment and risk management solutions remain market leading and that our business continues to grow in Australia and globally,” Mr Poulton concluded.

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Based in AFEX’s Sydney office, David will oversee the company’s foreign exchange dealing on behalf of its SME, corporate and institutional client base across Australia and Asia-Pacific.

David joins AFEX from Western Union where he worked as Senior Corporate Foreign Exchange Dealer from 2010. He has also held previous roles at Custom House and National Australia Bank.

“We’re delighted with David’s appointment and know his excellent understanding of the risks and opportunities our clients face will serve them very well,” said AFEX Chief Executive Officer, Jan Vlietstra.

“He joins us at a very exciting time for AFEX in Australia as we continue to grow rapidly in the domestic market and build new opportunities across Asia-Pacific.”

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