Case Study

Opening windows to forward purchasing

A large UK-based manufacturer of U-PVC products importing raw materials from Germany. The company is invoiced in Euros by its supplier and markets its end products in the UK, for which it is paid in Sterling.

Scenario

The company had previously used its bank to manage all foreign exchange transactions, simply purchasing currency on a spot basis to pay invoices as they became due. This left the company unduly exposed both to adverse fluctuations in the foreign exchange market and to the cost of U-PVC, putting its profit margin at risk. The company could, however, forecast with some accuracy the amount of raw materials they would need based on past performances and projected sales. In this situation the client could plan future purchases well in advance in order to protect against potential risks to its bottom line.

Solution

Working closely with Moneycorp, the company changed the way it handled payment of foreign currency invoices. Moneycorp offered a tailored solution allowing the company to lock-in a favourable rate of exchange to be applied at future points in time. The Moneycorp MSTA (Member of the Society of Technical Analysts) qualified personal dealer offered the client expert guidance ensuring that this rate represented a good buying opportunity well above costed levels. The company could simply draw down funds from the total value of the contract as and when invoices needed to be paid, confident that it had protected its bottom line while freeing up cash-flow with no loss on currency movements. This result was achieved by working with the client proactively to understand the company's individual needs, and keeping the client regularly updated.

Benefit

As a result, the company was able to secure forward contracts for the year ahead at a preferable rate, maintaining comfortable profit margins well above costed levels. This also allowed the company to absorb fluctuations in material costs, as its costs were perfectly hedged against currency risk, and in essence to add value to their bottom line. The client could cost more effectively and hence was able to pass a portion of savings onto end users, thereby increasing their competitiveness within the market. With Moneycorp acting as an outsourced treasury, the company could then focus on its core business activities, with the knowledge that its personal Dealer was at the end of the phone should it require any further information on foreign exchange markets, or need to top-up with spot transactions.

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