The Context

Travel business operate in a distinctly currency exposed environment, with high seasonality, advance bookings and fixed price packages sold in GBP against operating costs in multiple foreign currencies. Volatility in currency markets can lead to significant margin impact and reputational damage if not managed.

However, many companies still manage exposure reactively using spreadsheets and ad hoc forward cover or not even hedging at all. This leads to inaccurate reporting, poor visibility over hedge effectiveness, and increased vulnerability to market swings eroding margins on sold, fixed cost holiday packages.

The Solution

Currency Risk Management and Execution

Smart provided ongoing strategic guidance on forward cover and strategy review to ensure hedging meets company risk appetites and objectives. API integration and Fintech solutions also play a prominent part of medium to longer term goals for the company, with SmartHedge Pro able to provide simple, informative and automated reporting and reconciliation. However, the FD needed a more structured internal view to justify decisions and build trust at board level.

SmartHedge Pro Implementation

SmartHedge Pro was positioned as a significant value add to transform their FX process from reactive to proactive and improve daily work processes, and the Financial Controller recognised its potential to streamline reporting, credit management, and exposure / policy alignment.

Key features deployed:

• Exposure Tool: Visibility of open positions and seasonal income, set against hedging policy framework
• Contract Management: Individual currency pair breakdown of forward contracts, mapped against specific bookings and seasonal anticipated demand
• Credit Line: Information on facility utilisation with alerts for peak period stress points, alongside a mark to market ‘roll off’ schedule for contracts close to maturity date
• Stress Testing: Modelling of simulations of exchange rate changes and how this may impact potential for margin call
• Board Reporting: Packaged reports visualising FX performance, hedging ratios and policy compliance by currency pair or timeframe

Onboarding Time

Smart held several sessions with the finance team to upload historical booking and deal data, configure exposures alongside hedging and validate how it became easier and simpler to track currency requirements. Buy in was secured from the FD and board after demonstrating time savings and strategic clarity alongside Smart’s specialisation in this industry & plans to explore the Fintech API solution.

The Challenge

The Group Financial Controller was under pressure from the board and internal stakeholders to deliver:

• Clear, up to date visibility of FX exposure by currency, region, and booking window
• Evidence of adherence to their internal FX policy
• An automated, tech led treasury and API solution within one space, streamlining the booking / currency / final delivery journey
• A robust ‘hedging booked’ report and exposure reconciliation process, tying bookings to hedging and working from a single source of truth without large manual intervention & maintenance
• Oversight of their FX credit line usage, with concerns about margin calls during peak volatility, as they are a cash tight business
• Confidence in reporting stress tested scenarios when presenting to investors and board committees

Historically, the problems included:

• FX deals booked via the broker but manually recorded and reconciled across different tour cycles and booking systems – very time consuming
• Limited forecasting tools to anticipate how shifts in booking pace or exchange rates would impact coverage ratios or credit usage and policy adherence
• Manual stress testing (if done at all), making it hard to model cashflow scenarios under adverse rate movements

Why it worked

By combining our FX execution service with SmartHedge, the client was able to:
•Monitor and hedge their seasonal exposure more accurately and in line with demand trends or individual bookings
•Ensure policy adherence across multiple currencies
•Stress test potential market volatility and communicate risk confidently to the board
•Avoid reactive hedging under pressure by underpinning hedging decisions by a data lead approach, and anticipate the risk of margin call during rate swings
•Integrate SmartHedge into their existing treasury operation without extra cost or resourcing, with on hand support from Smart

Key Takeaways for Pharmaceutical Businesses

1. Seasonal / booking risk is manageable: With the right data in SmartHedge Pro, complex and pressing exposures can be forecast and hedged confidently.
2. Credit line and liquidity tracking: Using SmartHedge Pro, businesses can track and stress test facility usage to avoid cashflow shocks, both across Smart and other hedging counterparties.
3. Visibility drives better decisions: A structured FX view improves confidence, supports better policy management, improves internal time consuming processes and improves reporting at board level.