How a European gas company protects profit margins

One European leading Liquified Petroleum Gas (LPG) wholesaler, was looking for an automated solution to protect its operating margins from currency risk. Their business model entails purchasing gas internationally and distributing it through its retailer network in two different ways: with semi-annual contracts with pre-established total volumes and by filling orders from extra-contractual demands.

Hence why the company needed a solution that could accurately hedge both its forecasted and transactional exposure and save them time automating the exposure data flow from their TMS or ERP.

FX CHALLENGES

When they started looking for currency management solutions, they wanted a software that would be able to adapt to the unexpected market fluctuations that impact their operating profit margins and make them highly sensitive to FX risk.

The main hurdles to adopting an effective treasury management strategy came from the extended time lapse between firm commitments and cash settlement required to hedge transaction exposure. In addition, the excessive burden that manually-executed FX risk management was putting on the firm’s treasury resources was stopping the gas company from achieving their FX goals.

THE SOLUTION

With Kantox, the organisation now is able to manage their entire FX workflow easily through an interface that provides the firm’s risk managers with real-time visibility over both forecasted and transaction exposure.

Thanks to the Kantox Dynamic Hedging® solution, they were able to remove FX risk on its transactional exposure and avoid over-hedging forecasted FX exposures. The software selects the optimal program configuration based on the business model and the manager’s rules to operate their transactions.

Now, they have a combination of a micro-hedging program for firm commitments and a static hedging program with conditional orders that has reduced their FX risk.

THE BENEFITS

A currency management automation solution like Kantox that quickly hedges the forecasts and firm orders, allows the company to maximise the impact of favourable forward points.

They are now equipped with the right tools to protect its profit margins from currency risk while effectively hedging all cash-flow FX transaction exposure.

The automated solution streamlines the entire FX workflow, successfully eliminating the ‘key-person risk’ in FX management and enabling the Treasury team to be more efficient and the risk manager to focus on more strategic tasks that nurture the organisation’s growth.