Case Study

UK retailer uses flexible FX hedging strategy to secure profit margins and establish visibility

Find out how Argentex has helped a UK water sports retailer align its international payment strategy with seasonal cashflow.   

Background: Dwindling profit margins

In times of market instability, importers without a dedicated FX strategy are at the mercy of fluctuations in currency markets.

As a specialist in water sports, one of Argentex’s London-based clients imports paddleboards from the US to sell to consumers, boasting approximately 10,000 customers, including schools across the UK. With suppliers based in the US, the retailer was required to make payment in USD rather than GBP. With an annual exposure of approximately £6m, the retailer purchased US dollars as and when they required stock.

As demand for the client’s product is seasonal, payment needed to be made to its wholesalers in time for the summer rush, just as the exchange rate was moving against the firm. The knock-on effect of this currency shift meant that the client’s profit margins would be affected, leading to a potential increase in prices and loss of business.

Solution: Agreeing a fixed exchange rate to solidify a cost level

Realising the full impact FX exposure would have on revenue, the client’s finance team approached Argentex. Our team of experts reviewed the retailer’s unique requirements, currency exposure and seasonal cash flow. Building a hedging strategy that suited the client’s needs, we worked with the firm to establish a fixed exchange rate for the total amount of USD needed for its seasonal purchases.

Additionally, we provided the client with a 0% initial margin credit line, so the business’ cash flow was not affected when placing the forward contract, freeing up more cash for the day-to-day operations of the business.

Result: Benefits that go beyond savings

Allowing the client to solidify a cost level, the business maintained its price point and competitive edge. Selecting a financial product that matched the client’s cyclical payment requirements enabled the company to draw down partial amounts as they needed to make payments.

If the client had continued to purchase currency without a dedicated strategy, they would have incurred a significant loss over the year. Argentex saved the retailer thousands of pounds on each drawdown. By agreeing to a fixed pricing model, the finance team can now more accurately forecast revenue and maintain profit margins, as well as make significant savings.  

For more information about Argentex’s payments and currency risk management solutions, please contact us on [email protected].

Disclaimer: Argentex LLP is authorised and regulated by the FCA for the provision of the investment services, FRN 781007, and for the issuing of electronic money, FRN 900671. This document specifically refers to those services offered by Argentex that do not fall within the scope of investment services – spot contracts and forward contracts that meet the mean payment exclusion criteria as defined in the MiFID II regulations. Nothing contained in this document should be construed as advice, a personal recommendation or inducement to deal in any MiFID II designated financial instruments.

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