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03 July 2009

Modelo got bushwhacked in their own hedges

In theory, at least, currency hedging helps companies control risks in a volatile global economy. The Mexican brewer Grupo Modelo with a dollar-based income from its export sales to the U.S. would have been concerned that a weaker dollar will depress its revenue. Hence, it would have been eager to hedge. Nevertheless, hedging is a high-risk investment – as Grupo Modelo has just found out.

Readers may be interested to learn that Grupo Modelo still managed to put a positive spin on its losses. This is how Grupo Modelo explained it all away: “The cancellation of these hedges will allow the company to reflect in a much clearer way its operating results and the diversification of its sales,” the company said in a filing with the Mexican Stock Exchange.

Grupo Modelo said it will book the cost of unwinding the hedges, which it paid in cash, in its second-quarter results.

As concerns the vacant position, Modelo announced that as of July this year Emilio Fullaondo will serve as the company’ s Vice President of Administration and Finance. Before the appointment, Mr Fullaonda was Grupo Modelo’ s comptroller. He has been with the firm for 14 years.

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