UK-Based Food Importer | Spectrum

Case Study:

UK-BASED FOOD IMPORTER

Safeguarding profit margins while capitalising on favourable currency fluctuations.

Background

Our client is a reputable food importer in the UK, primarily engaged in the sale of frozen foods sourced from China, Morocco, and Ecuador.

They receive revenues in GBP while their suppliers require payment in US dollars.

Operating by purchasing frozen food in bulk containers, the client imports and resells these products to various UK businesses and consumers.

Initially, they priced their products using a budgeted exchange rate of $1.25 for GBP/USD.

Challenge

Before partnering with Spectrum, our client relied on the spot exchange rate through their online banking to pay suppliers.

This approach led to inconsistent profit margins; if the exchange rate fell below the budgeted $1.25, it negatively impacted their margins.

At times, they hesitated to make purchases altogether, resulting in an unpredictable business environment.

On the other hand, when the rate exceeded $1.25, they would purchase as much as possible, constrained only by available resources.

Despite a temporary surge in the exchange rate to $1.30, the client expressed concern that their forward contracts would result in purchasing USD at a rate lower than the spot rate on payment due dates.

Solution

Spectrum introduced innovative hedging strategies utilising market orders teamed with forward contracts.

When the GBP/USD exchange rate surged past the $1.25 mark, we locked in a portion of their anticipated USD expenses with a flexible 12-month window forward contract.

This allowed the client to reserve a specific amount of USD at a guaranteed rate of $1.25 for use at any point within the 12-month period.

As the GBP/USD exchange rate continued to climb, a second forward contract was secured at $1.28, providing additional coverage.

Thanks to the flexibility of the forward contracts, the client could take advantage of favourable spot rates while leaving their forward contracts as a safety net.

Eventually, the GBP/USD exchange rate dropped to lows of $1.20. However, the client was able to continue to buy USD through their window forward contracts at the previously locked rates of $1.25 and $1.28, ensuring consistent business operations.

Notably, there was a point when the client purchased USD at $1.28, while the spot price offered by their bank was $1.1840.

This represented a 2.34% improvement over their budgeted rate and a remarkable 7.5% advantage over the rates provided by their bank at that time.

Results

With the strategic hedging solutions offered by Spectrum, the client's business has experienced significant growth, with a turnover increase of 200%.

This not only highlights the effectiveness of our currency management strategy but also showcases the client's ability to operate with greater stability and confidence in a volatile market.

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Spectrum FX Limited is a company registered in England and Wales (registered no. 11080130).

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Stay up to date with market changes

All testimonials, reviews, opinions or case studies presented on our website may not be indicative of all customers.

Site by Lashmire.