How three companies used EDC’s solution to improve their FX strategy

The company exports primarily to the United States, but also to Mexico and the United Kingdom. With Canada being a relatively small market, it’s no wonder that 70% of the company’s sales derive from exports. Their first shipment went to the U.S., which continues to be their leading market. Although most of their receivables and product input payables are in U.S. dollars, they still have considerable operating expenses back home that need to be paid in Canadian dollars. 

Having an effective FX hedging strategy is essential to ECB’s bottom line. They rely on natural hedging for half of their currency exchange requirements in any given year. For the rest, they buy forward contracts through their financial institution to lock in rates and provide stability to their cash flows. The downside is this ties up their working capital in contracts, putting a strain on their small, but growing company. With advice from their FX provider, they put EDC’s FXG in place, to guarantee their forward contracts while keeping working capital liquid.

“A company, like ECB, has to remain competitive, and one way they do that is through longer payment terms—up to 90 days in some instances,” says EDC account manager, Colin Smith. “From the time their invoice is issued to the time it gets paid, currency rates can roller-coaster. In the meantime, they still have to meet payroll, pay taxes and all their other expenses. So, an EDC FXG eliminates the unknown, while still allowing them to put their full working capital to work to reach new customers.”

Given that the bulk of their sales aren’t in Canadian dollars—yet, their expenses are—the growing company needed to guard against the adverse effects of currency fluctuations. At the same time, they needed access to their credit line to secure the cash flow needed to take on new international contracts. 

EDC’s FXG provided a guarantee to Averna’s financial institution (FI) that enabled them to put hedging tools in place, which protected the company’s profit margins.

“Using the right FX hedging tools can have a huge, positive knock-on effect for exporting companies. With profit margins protected, a company’s equity will continue to grow over time, as will R&D expenditures—and ultimately, global growth,” explained Bruno Soares, EDC’s senior account manager for Averna. 

The company began exporting early on, first to the United States and Japan. Eventually, their market penetration numbered more than 80 countries, with annual sales exceeding $90 million.

With more than 90% of their sales flowing from foreign markets, one of the key challenges faced by this global agri-tech giant is managing currency fluctuations. Their FX strategy involves hedging for up to 36 months in advance. They rely on EDC’s FXG to free up their working capital needed in developing international markets while their FI mitigates currency risk by using sophisticated foreign exchange contracts.

ASL has a huge customer base, with many placing recurring orders. And while EDC’s FXG allows for predictable cash flows, budgeting and business projections, a big plus for the Dartmouth, NS company is being able to offer stable pricing to their international buyers. With locked-in rates, there’s no need for them to constantly adjust their price points or take unexpected currency hits.    

According to EDC senior account manager, Tarek Al-Owaishi, the company’s FXG needs have grown right alongside their revenues. “A company, like ASL, which operates in many markets around the world, can be exposed to numerous currencies that can fluctuate in value over time. So, it’s every bit as important for them to have foreign exchange hedging strategies in place now than it was when they first started exporting.”