The coronavirus pandemic triggered a surge of volatility in FX markets. While the picture has calmed since the start of the pandemic, volatility can arise at any time, and the wild currency swings of 2020 underscored the importance of having a solid FX risk management strategy in place.
Many Nordea customers have made great strides in systematically controlling their currency risk exposure. We showcase five success stories below.
Newgen: Dodging FX losses with layered hedging
Sweden-based Newgen Distribution is a leading distributor of Fitbit and other connected technology brands in Northern Europe. With most of its import purchases in EUR and USD and the bulk of its sales in SEK, the company is exposed to the risk of currency fluctuations. In 2019, Newgen’s CFO engaged Nordea to implement a layered hedging approach to shield its bottom line from FX volatility. The move paid off, allowing the company to avoid exchange rate losses of up to 10% during the Covid-19 pandemic. Read An effective hedging strategy helped this company dodge FX losses during Covid-19.
Ball Group: Protecting the budget rates to avoid swings in financials
Denmark-based fashion retailer Ball Group is another company heavily exposed to FX risk. The European leader in the plus-size women’s clothing market sources most of its products from Bangladesh, China and India, where the purchasing currency is largely US dollars. Meanwhile, with the bulk of its sales in Scandinavia and Northern Europe, its sales currencies are primarily DKK, EUR, SEK and NOK. In 2016, Nordea helped the Ball Group develop an FX risk management strategy that uses a layered hedging approach. The strategy proved worthwhile, particularly with respect to the NOK and the SEK, which plummeted in the spring of 2020. Read How a women’s fashion retailer is navigating the Covid-19 storm.
Pohjanmaan Kaluste Oy: Responding to the Covid-19 wake-up call
Finnish furniture company Pohjanmaan Kaluste Oy had been steadily growing its American export business when the Covid-19 pandemic hit and the value of the US dollar plunged. With roughly 15% of its sales in USD, the company decided to quickly implement a layered hedging approach to limit its exposure to any FX turmoil. While business during the pandemic has been tumultuous, with supply chain disruptions, surging demand and material shortages, the company has benefited from being able to set its FX worries aside. Read Covid-19 was a wake-up call for this company to manage its currency risk.
Ideal of Sweden: Investing in automation to drive growth
Swedish mobile phone accessories maker Ideal of Sweden has been on a whirlwind growth journey, from its early days as a garage operation to a world-recognised lifestyle and fashion brand. Growth and innovation is in the company’s DNA and part of that has meant finding ways to turn manual processes into automated ones, with the help of technical solutions such as Nordea’s AutoFX. The currency robot allows Ideal of Sweden to offer customers the convenience of pricing its goods in local currencies without the hassle and time spent on manual currency conversions. Read How an e-com pioneer grew to SEK 1 bn in turnover in just a few years.
Volati: Controlling currency flows while cutting interest costs
Swedish industrial group Volati acquires well-managed companies and develops them, with a focus on long-term value creation. Given its 14 subsidiaries located in 16 countries, the company’s global cash pool has a huge number of flows in different currencies. Volati turned to Nordea to find a cost- and resource-efficient solution to gain control of its currency flows and manage the group’s currency exposure and interest costs. The solution: Nordea’s AutoFX Liquidity Management. The currency robot reconciles Volati’s currency flows daily, reports the balances and ensures that the currency positions are neutralised using instruments such as currency swaps, forwards and spot transactions.
“In purely financial terms, implementing AutoFX has been a good deal for us, just on interest savings alone. We’re also undergoing strong growth and wouldn’t have had the capacity to pursue our growth without AutoFX relieving the burden,” says CFO Mattias Björk.
To help companies on their FX automation journey, Nordea has developed a suite of products for its AutoFX offering. In addition to AutoFX Liquidity Management, Nordea has also recently launched AutoFX Hedging, allowing companies to automate their FX hedging according to their own hedging policy. The bank has also unveiled AutoFX IQ, a new FX advisory tool that helps companies analyse and forecast their currency cash flows for smarter decision-making. That’s alongside a host of AutoFX APIs, which allow companies to fetch relevant data such as FX market rates and historical trades, as well as execute FX trades when something happens in their own system.
Read more: 5 steps to manage your currency risk
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