Weather permitting ...

AuthorBartram, Peter
PositionRisk management

What's the best weather for selling chocolate? Earlier this year Thorntons, which had 369 UK shops before an announced programme of closures, said the unseasonably warm weather in the run-up to Easter had hit sales and would cut the company's full-year profits. So not hot, then.

But back in February the company complained that the freezing temperatures and heavy snow last December meant delivery lorries couldn't get through to the shops. Yuletide sales were down by [pounds sterling]3.5m. So not cold either.

Thorntons is not the only company that has had to issue weather-related profits warnings this year. Model train maker Hornby blamed the pre-Christmas blizzards for profits falling short of expectations. Logistics operator UK Mail said the extra costs of delivering along frozen roads would reduce earnings. Specialist building services company Northern Bear, which is listed on the AIM market, said its profits would be down as a result of terrible weather last November and December. And retailer Alexon Group blamed a weather-induced 20 per cent drop in like-for-like sales in its vital pre-Christmas trading period on its profit warning.

CFOs who believe these are relatively isolated incidents based on rarely repeated weather conditions should think again. Financial weather specialists say that extreme weather events are likely to become more frequent as a result of global warming. Moreover, companies that thought they were immune from weather-related damage to their business should take a closer look at the huge costs that unexpected weather can cause.

Matt Huddleston, principal climate change consultant at the Met Office, says that extreme weather events cost businesses around the world $218bn last year. Only $43bn of those losses were insured. "Businesses often write off weather impacts as acts of God - force majeure - and let it hit the bottom line, share price and reserves of capital," he says.

Extreme weather affects almost all firms in some ways. The Federation of Small Businesses says that each day of snowy disruption last year cost the country's companies between [pounds sterling]600m and [pounds sterling]lbn in lost output - often because staff couldn't get to work.

"It's quite common that businesses don't manage weather risk," adds Huddleston. But it doesn't have to be like that.

So what's a CFO to do? Well, the first thing is to decide if the weather is a factor that could hit the company's bottom line. Jim N R Dale, who founded...

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