Foreign Exchange | Case Studies
Navigating FX market volatility within the Manufacturing Industry with LODE Group
Established in 2008, Lode Group Ltd (formerly KMA) manufactures and supplies specialist high performance carry solutions, bags, and cases. These solutions are carefully designed and constructed to carry specific tools and devices for its customers – brands such as Network Rail and 3M.
Financial impact of currency volatility
Tailored hedging using Options and Forward Contracts
More control over profits and pricing
The Challenge: Navigating FX market volatility
From equipment bags and rucksacks engineered specifically to fit and protect your equipment in its environment to top to bottom rugged workwear protecting your people, LODE provides bespoke PPE and carrying solutions for industrial, defense and safety sectors. Amongst the company’s greatest product innovations is the quick-release Rip-Clip™ safety rucksack, supplied to customers who deliver emergency services and seek high performance bags where safety and reliability matters. Lode Group has grown rapidly across a variety of sectors and is now certified to ISO 9001, (UKAS approved), allowing it to tender for government contracts.
However, this growth has increased the company’s challenge with foreign exchange. “Our supply chain spans across both the Far East and Eastern Europe, with imports from China the primary source. These contracts are largely denominated in US Dollars, meaning our cost base is highly exposed to fluctuations in the GBP/USD exchange rate,” says Phil Melling, Managing Director at Lode Group.
“The landscape completely changed in recent years due to Brexit. Before the EU Referendum in 2016, we were budgeting around $1.50. However then rate fell by nearly 17% to $1.24 and our profit margins were devastated. Ongoing market volatility is a big problem because our customers are very sensitive to price so this puts pressure on us to manage costs.”
“Western Union Business Solutions is a trusted partner for us because of the expertise of their staff and the wide selection and flexibility of the hedging products they offer.”
-- Phil Melling, Managing Director, Lode Group
The Solution: Hedging provides control and certainty
Lode Group now proactively books currency in advance to secure exchange rates and remove the risk of fluctuations, providing stability in costs and pricing to its customers. The company uses hedging products, that include both Forward and Options Contracts, as part of its risk management strategy.
After speaking with staff and attending webinars, Lode Group changed its approach. “The solutions experts at Western Union Business Solutions helped us to redevelop our strategy and stay alert to market developments.
“The variety of business-friendly hedging products, such as Options, allow us to fix long-term costs in new and different ways” says Melling.
The Results: More time, assurance and confidence
Previously Lode Group did not have a consistent way of doing things. According to Melling, “We were using multiple providers, and last-minute comparisons were time-consuming and stressful. The dedicated support and white glove hedging service Western Union Business Solutions offers gives us back about 15% of our time per week.”
Lode Group’s new approach to hedging also offers other benefits. “Our hedging processes help us to assure our prospective customers that we can offer them stable pricing in an uncertain market,” explains Melling. In addition to this, Lode Group also utilises the WU® GlobalPay platform, which provides efficient payments and automatic notifications to its suppliers.
“Western Union Business Solutions is a trusted partner for us because of the expertise of its staff and selection of hedging products it offers. I feel our business is in safe hands which is allowing us time to concentrate on other important issues such as growing our business.”
Disadvantages and Risks of Hedging Strategies
Hedging products are derivative financial instruments which involve risks due to FX market volatility. This can be disadvantageous and pose risks. If uncertainties concerning your risk management remain, we advise to not enter into contracts with Financial Instruments.
Western Union Business Solutions is a trusted partner for incoming and outgoing international payments and foreign exchange. Speak to a specialist today to find out how we can help your organisation make considerable cost and time savings.
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