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 their international payments strategy with seasonal cashflow.   

The problem: 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 an annual exposure of approximately six million pounds, the retailer purchased US dollars as and when they required stock. Business was consistent. However, due to volatile currency markets, the team had been struggling to sustain their profit margins. With suppliers based in the US, the retailer was required to make payment in USD rather than GBP. As demand for the client’s product is seasonal, payment needed to be made to the client’s wholesalers in time for the summer rush, just as the exchange rate was moving against them. 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.

The solution:  Agreeing a fixed exchange rate to solidify a cost level   

Realising the full impact FX exposure would have on their 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 company to establish a fixed exchange rate for the total amount of USD needed for their seasonal purchases. In turn, this enabled the client to solidify a cost level, while maintaining their 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. Additionally, we provided the client with a 0% initial margin credit line, so their cash flow was not affected when placing the forward contract, freeing up more cash for the day-to-day operations of the business.

The result: Benefits that go beyond savings  

If the client had continued to purchase currency without a dedicated strategy, they would have occurred a loss of £23,015.40 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 bank significant savings.  

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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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