Early this year, the weakened U.S. dollar was hammering the bottom line of Soheil Mosun Ltd., forcing the temporary layoff of nearly a third of its work force.
Still, things would have been worse if the Toronto architectural fabrication company had not been smart and lucky, says chairman and chief executive officer Darius Mosun.
"When we got punched in the stomach early this year, we kind of became experts [in exchange rates]" he says, adding that Soheil Mosun now inserts currency protection clauses into its foreign contracts. Those clauses have become a central part of Soheil Mosun's planning as it copes with a Canadian dollar that soared briefly to more than 84 cents (U.S.) yesterday, before closing at 83.75 cents, a 12-year high.
But Mr. Mosun admits the firm is also a beneficiary of good timing. In past years, it enjoyed a windfall from the strong U.S. dollar in landing U.S. contracts. When the currency plummeted last year, it was coming off a five-year run of big-ticket U.S. projects, which constituted 75 per cent of total business.
"Luckily, the change in the exchange rate hit us on only the last 5 per cent of those jobs," says Mr. Mosun, who adds the firm has now returned to a more equal balance of Canadian and U.S. business.
The company, with revenue of more than $10-million (Canadian) a year, specializes in high-end custom metal fabrication work. Its projects include a current $3-million contract to provide bronze windows for the renovated Library of Parliament in Ottawa, and assorted projects for General Motors Corp., including elevator cabs for its Detroit headquarters.
The plunge in the U.S. dollar value, which came near the end of the company's peak U.S. dollar earning activity, still sliced hundreds of thousands of dollars from profit margins, Mr. Mosun acknowledges. But the outcome was that the family company became active about foreign exchange management, says Mr. Mosun, whose immigrant parents, Soheil and Brigitte Mosun, founded the business in 1973.
Soheil Mosun has started to insert clauses in new U.S. contracts that click in when the Canada-U.S. exchange rate shifts by, say, 3 to 5 per cent in either direction from the level at the contract date. Under the terms, the company and customer would split equally any additional costs for either party.
Those moves, combined with a strong order book, have allowed Soheil Mosun to strengthen margins in recent months, although year-over-year profit is still down about 30 per cent.
Most important, it has been able to rehire the 12 people who were laid off from its 40-person work force at the start of the year. (The company's work force varies widely with projects, and was once as high as 150.) Now, Mr. Mosun says, the firm is starting to add new jobs again.
He says the company has some clout in negotiating currency protection because it offers a fairly unique service, with few U.S. rivals. "We're in a bit of a bubble because there are only a certain number of people who can do this custom high-end work."
He says the firm also benefits from the breadth of its product lines, which has allowed it to shift operations to domestic jobs that would hedge its currency risk.
Canadian exporters should be frank with customers and suppliers about their exposure to currency shifts, he argues. None of the companies he does business with wants him to go out of business, he says, so they are often willing to adjust contracts.
"I deal with customers that allow us to make a decent amount of profit," he says. For example, U.S. clients have been willing to speed up payment processing to 45 days from 90 to help him through the currency crunch.
Not that clients are totally sympathetic to Mr. Mosun's plight. He recalls crying on one customer's shoulder, only to have the man pause and say dryly: "So, Darius, what were you doing with all that money you made when the exchange rate was to your benefit?"
Mr. Mosun admits that "I didn't really have an answer for him."
He says recent currency moves have been compounded by a dramatic rise in material costs, which has further thrown off cost projections. The cost of high-quality steel has gone up 65 to 70 per cent in the past 1½ years. But that doesn't disturb him as much as the currency fluctuations, because the materials crunch hits his U.S. competitors equally hard.