RE: By The Numbers24 Mar 2023 08:17
The reporting term is OCI, other comprehensive income. You can google it. It’s part of the IFRS reporting. Asp has offered a good explanation.
I can try and simplify it right down to a unit level…..
Say your all in sustaining cost to run a business, tax, pay, non pay, hedging, everything is £1 per ton of potatoes you sell.
Ok so everything over £1/ton is profit.
Potato prices are volatile so you agree to sell them at £2. So that gives you £1 profit per ton. Happy days.
Now the cost of potato has gone up to £2.90/ton!
So when you do your accounting for that period your books show
£2 your sell price - £1 your AISC = £1 income/ton
But your opportunity loss is ..
£2.90- (£1 AISC + £1 income) = 90p/ton!
So you have an opportunity loss of 90p but you have only lost opportunity as you have still made £1 per ton.
Now you also have to factor in volumes. This is a massive benefit to DEC and imo has been overlooked.
To achieve their running costs they need to sell 5 tons of potatoes but have sold 6 albeit at a lower price to market price!
The above is pretty much dumbed down but you can now see what happens if potatoes go for £5 a ton and how it shows as a huge OCI loss!
But where we are now is potatoes are currently selling for £1.60 per ton so we will have an OCI profit of 40p/ton!
DEC hedge potatoes to make sure that if potatoes prices go to £1.90p a ton they can still pay their way!
Some prefer that safety net like the bond holders, banks and investors and those that do not because they reminisce over the 6 months that they lost £3 profit per ton should consider if this potato business is for them.
But to DEC’s credit they still risk 20% of their pricing to market as that can be absorbed within their model.
I think that’s the gist!
Usual caveats
Trek
£2.90, cost per ton - £2
Sign In
Follow the stocks
