Fashion retailer
- Forward hedging strategy

The situation

Our clients core revenues are GBP denominated with the majority of sales being dispatched to UK customers. Almost 100% of the supply chain was in the Far East and the client has the requirements to pay their network of suppliers in USD.Our client releases a catalogue of products to its customers that are both businesses and end users on the 1st January every year. The catalogue included GBP prices and the customer had used a budgeted rate of 1.3000 on GBP/USD. 1-year pre-orders are then placed by his customers giving the client great visibility on his stock needs and subsequent USD spend throughout the year.

The challenge

Prior to working with Capitex, our client paid his suppliers using the spot market at the end of every month. This had meant the clients margin had been negatively impacted by an aggressive devaluation in the pound. Because the prices were fixed in January, the client was forced to reconcile an FX loss to the bottom line at the end of that trading year.

The solution

Capitex introduced our client to hedging via the forward market. The client was able to fix his expected spend for the year, in January at a rate 4% higher than his budgeted rate. Our client had fixed the GBP cost of their purchase orders for the year and had alleviated the risk of the market eroding the addition margin that the hedging solution had created.