Case Study - Importer
Hedging inventory costs is essential for this supplier of world-class educational resources. The majority of their sales catalogue is imported into Australia, and the business must purchase the supplies in various foreign currencies.
Challenges
Their main challenges included sending their catalogue to schools before the school terms and locking in sales prices for a committed period of time. Without using forward foreign currency contracts to secure their margins, the business risked its gross margins due to fluctuations in the Australian dollar. Additionally, the business required a proactive policy to manage foreign exchange risk effectively. However, the finance team and the board lacked direct experience in developing or implementing an appropriate hedge accounting program.
Our support
Hedge Effective Advisory provided the following services:
Produced a Derivative & Hedge Accounting Policy (DHAP) for approval by the Audit & Risk Committee.
Delivered managed services to run the hedge accounting program for the finance team.
Provided ongoing advice and support to the business during subsequent audits.
Outcome
With our help:
The hedge accounting program successfully reduced the accounting volatility resulting from its new foreign exchange risk management policy.
Inventory balances are adjusted with effective hedges, removing gains and losses from profit or loss.
The CFO now has peace of mind, knowing that the audit will run smoothly and costs will be minimized.
The finance team can concentrate on core objectives without getting bogged down in the complexities of hedge accounting.