A US based food processor with substantial overseas sales and production activity was purchased by a financial sponsor. With its non-US sales exceeding its costs, the business was subject to FX exposures that were based on volatile and therefore difficult to forecast sales volumes. Hedges were not being entered into in a methodical manner and there was no consistency with respect to the FX hedging instruments being used.
- Perform a review of the company’s FX exposures and hedging practices;
- Determine that while sales were volatile, there existed a core of foreign currency revenues that could be hedged with FX forward contracts; and
- Assist in design and implementation of an appropriate hedge programme.
Results & Recommendations
We helped the client generate a twelve month rolling currency cash flow forecast with a hedging range that was initially low, but increased over time, as the knowledge of the exposures increased. The programme itself prescribed the use of simple FX forwards for core FX exposures. PMC has since continued to assist the business with its ongoing FX hedging activity.