UK Importer from Swedish Supplier
The challenge for this business was to protect their budget level between the point of sale and the time they had to settle for goods with their Scandinavian supplier. The British Pound (GBP)/Swedish Krona (SEK) rate regularly fluctuated above and below the budget level of the business. This often had a negative impact on their net income and their profit margin was affected when the rate for SEK costed more than they had expected. The client needed a foreign currency strategy that would protect them from these market movements whilst still keeping them competitive in the market place.
Global Reach Partners developed a Forward strategy for the client which allowed them to fix a GBP/SEK rate for a specific order. Stephen was able to fix a rate on the day his order was agreed with his Scandinavian supplier and therefore his costs were locked in and his profit protected.
This soon extended to purchasing larger volumes of currency when the rate was above budget level and doing so for an even longer period of time. As a result, the company’s budget levels were protected for orders he received later in the year. This also meant that any future movements in the exchange rate would not affect the pricing or profit margins of the company and they could then offer consistency to their customers while guaranteeing profitability.
While he is often on the road travelling on business, Stephen has direct access to his Commercial dealers and is able to make decisions based on the market information we provide him with. The personal service from Global Reach Partners allows him to make an instant decision while on the move.
As a result of working with Global Reach Partners, Stephen was happy to have achieved a “break-even” on what had previously been a loss-making foreign exchange requirement. He is currently working with his Commercial dealers to turn this break-even into profit.
UK Manufacturing Exporter
A UK manufacturer exporting overseas and shipping goods to customers internationally.
Finding a flexible FX strategy to factor in last minute changes in shipping schedules that could affect the profitability of the business. For any UK manufacturer exporting overseas, shipping goods to customers can take weeks and even months. This can cause financial uncertainty as the exchange rate for the payment of the goods can easily change in the time it takes for the goods to arrive. Even the slightest change in the currency rate can lead to profitability being hit. There was also a need for some flexibility as shipment dates changed. The client’s bank was being too reactive in relation to currency movements and did not protect the client’s FX exposure.
Global Reach Partners commercial dealer was proactive and provided an innovative approach. The client now has a FX strategy that really does reflect the way it does business. A fixed-rate product, flexible enough to accommodate any movement in the currency markets, enabling the client to manage any business changes, for example changes in shipping and payment schedules.
With an average annual FX volume of £2million (predominantly in Euros), this leading fashion retailer was exposed by currency market activity in the last quarter of 2012 and worried how this would impact on the business’s bottom line. The Pound had depreciated by 3 % against the Euro between October-December 2012 and 2 % versus the US Dollar in the same period. There seemed to be no signs of any respite, with many economists and market experts convinced the pound would slump to a parity with the Euro.
When the client wanted to purchase £250,000 worth of Euros in December 2012, Global Reach Partners discussed the benefits of using forward contracts (an agreement to sell a currency at a predetermined exchange rate), as opposed to spot transactions.
In the same month, Global Reach Partners hedged the currency up at 1.2100 for six months to protect from any further spiral of the pound.
Since December the pound has depreciated 7.5% versus the Euro, hitting lows of 1.1380 in March 2013. However, their profit margins were protected and, in less than three months, the company has made a saving on its bottom line of £15,000.