Risk mitigation: The hidden impact of global volatility on multi-currency exchange rates within the security industry and beyond.
Interview of Stéphane Baccetti, Group Chief Finance Officer, Scutum Group
Q1. Covid and now the war in Ukraine have had an impact on global business. But how have these impacted global exchange rates, what visible affects have been noted in the finance sector on business cash flow?
A1: Three factors have affected global currencies in the last year, which has presented the need to forethoughtfully and carefully manage our FX. The offending occurrences are Brexit, Covid and the war in Ukraine.
During times of crisis, the USD tends to appreciate as it is considered a safe haven. The war in Ukraine has accelerated the appreciation of the USD and has highlighted the need for strong FX risk management. The war has affected other currencies as well, but they are harder to identify than the USD.
While the way we operate is very domestic, i.e., we bill our customers, pay our vendors and employees in the local currency, currency fluctuation has had an impact on supply chain. Ultimately, when demand is greater than supply, prices are impacted. We have seen such instances in the Security Industry with some components used in security and fire technology becoming more costly, with the increase being passed down the chain.
Q2. Many companies have contingency plans for ‘war room’ situations to mitigate risk to cash flow. Given the war in Ukraine, Covid and Brexit, what measures have Scutum Group used to minimise the impact on cash flow?
A2: In unsure times, businesses have to remain cautious about spend. Scutum Group has certainly paid close attention to all expenses, scrutinising need and value. Additionally, our receivables are scrutinised to ascertain if they are paid according to payment terms and we work closely with customers on this.
The Group has also formed closer relationships with suppliers to be kept up to date with any changes whilst markets are in flux. We work closely with our vendors negotiating best prices during a period of price increase. This also enables us to be aware in advance of any changes, helping to prepare and formulate the best solutions to protect our customers from these inevitable rises.
It should also be noted that we have proactively put in place coverage tools at Group level to mitigate as much as possible the evolution of the USD vs. our Consolidation currency which is the EUR.
Q3. Covid and the war in Ukraine have unexpectedly disrupted business operations on a grand scale in unanticipated ways. Are there any key lessons that can be used to augment Scutum Group approach for future situations, or indeed help manage the aftershocks of Covid as well as the impact of the war in Ukraine?
A3: Scutum Group has certainly become much more attentive to multi-currency account management and has established a multi-currency policy for the Group that all countries follow for consistency, sharing best practice.
The Group remains pragmatic, yet establishing this key policy has allowed us to pursue our acquisitions strategy at an increased pace.
More than ever, we need to continue to strengthen our relationships with suppliers, working closely to explore and negotiate bespoke agreements, greatly improving our cash flow and bringing us continually closer.
Q4. How do you think Scutum Group have managed these evolutions?
A4: Due to the company operating within the domestic markets of each country, Scutum Group have been able to avoid most of the multi-currency flux in the last year or so. We try to keep revenue and costs in the same currency and will continue to do that.
I would add, part of our M&A strategy, is to continue to expand in the US which will positively impact over time our revenue when consolidating in EUR whilst the USD remains strong.
To conclude, Scutum Group have implemented an excellent strategy during times of crisis to reduce the risk to ourselves, as well as to our customers, but like any strategy there is always room to grow and adapt, and the lessons learnt over the last few years will allow us to continue to do this.