With a national network of retail stores, the client sources products from various suppliers globally. All procurement transactions are conducted in USD, while sales are made in AUD, necessitating a robust currency strategy.

Background

In 2023, the client faced significant challenges due to inadequate hedging strategies. The Australian Dollar experienced a consistent decline throughout the year, which severely impacted the customer’s profit margins. This led to two primary issues:

• Eroding margins and the declining spot market meant that the cost of purchasing products in USD increased relative to the revenue generated in AUD. This put substantial pressure on the client’s profitability.

• Additionally, to mitigate the impact of fluctuating exchange rates, the client had to frequently adjust their pricing. This constant change not only confused customers but also threatened to tarnish the client’s reputation and relationships with their clientele.

Solution

To address the current challenges, a solution was implemented, focusing on both immediate and mid-term strategies. The client was introduced to products designed to outperform the spot market complemented by an unsecured credit facility. This strategy provided a buffer against adverse market movements, ensuring more stable financial outcomes.

Argentex developed an FX hedging policy that was meticulously crafted to align with the client’s specific needs and market conditions. Key elements of the policy included regular hedging reviews to assess the effectiveness of the strategy and to make necessary adjustments, the use of a mix of hedging instruments to spread risk and enhance protection against market volatility. The policy was presented to and approved by the board, ensuring buy-in from all key stakeholders. This collective agreement was crucial for the successful implementation and
adherence to the new strategy.

Implementation and Results

The implementation of the bespoke hedging policy was a success, with the traded products effectively mitigating the impact of the declining spot market, stabilising the client’s margins and improving overall financial health. With a robust hedging policy in place, the client could maintain consistent pricing structures, enhancing customer trust and satisfaction, and ultimately helping to strengthen relationships with customers.

Regular reviews of the FX policy provided the client with greater visibility and control over their financial planning, allowing for better anticipation and management of market risks.

Conclusion

Argentex’s strategic assistance not only resolved the immediate challenges faced by the client but also established a solid foundation to ensure the client was always adequately hedged as per their FX policy.

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

Disclaimer: Argentex Pty Ltd, 1 Bligh Street, Sydney NSW 2000 is registered in Australia (ACN 644 424 500 and ABN 26 644 424 500). Argentex Pty Ltd is a subsidiary undertaking of Argentex Group PLC registered in England and Wales (company no. 11965856). Argentex Pty Ltd is Authorised and Regulated by Australian Securities and Investments Commission (ASIC) and operates under the Australian Financial Services License (AFSL Number 540430). Argentex Pty Ltd is enrolled and registered with Australian Transaction Reports and Analysis Centre (AUSTRAC Registration Number IND100838404-001) as an Independent Remittance Provider. www.argentex.com