Case Studies - King of Shaves

As a best of British brand that is proud of its policy of locally sourcing all of the ingredients to its leading range of shaving 'software', King of Shaves has never had much of a requirement to monitor foreign currency movements. However when it came to sourcing the blades for its new ‘Azor’ line, King of Shaves had to look beyond these shores, and as a result exposed itself to the vagaries of the international money markets.

Since the creation of its hardware range King of Shaves has been importing blades from Japan and as a result needed to transfer funds from sterling into yen. The company looked to foreign exchange specialist Foremost Currency Group to help manage its foreign exchange risk. In the first instance King of Shaves used 'spot contracts', the most basic and popular foreign exchange product. It is an agreement to buy or sell one currency in exchange for another.

King of Shaves has two days to settle the contract, at a price based on the prevailing 'spot exchange rate'; the current value of one currency compared to another, in this case the Japanese yen and sterling. Although the spot contract lets you buy or sell currency as you need it, spot exchange rate movements are highly unpredictable, even during a single trading day. "In the first instance we were not consistently exposed to foreign currency fluctuations and so spot deals were sufficient" says Charlie Wong, Finance Director & Company Secretary at King of Shaves.

However, in mid 2008 the relationship between sterling and yen became volatile. "The rate went from 212 to 113 in a very short space of time" says Charlie. This meant that King of Shaves was essentially paying more for the blades; a cost that came straight from the bottom line. This required a shift in King of Shaves approach and under the guidance of Foremost Currency Group decided that it was more beneficial to set a guaranteed exchange rate in order to mitigate future negative currency fluctuations. "We wanted to avoid a similar situation re-occurring, so I investigated other available options for foreign currency exchange. We used a forward contract which allows you to fix an exchange rate for up to two years paying a 10% deposit, and eliminating the risk of fluctuating exchange rates by locking in a price today for a transaction that will take place in the future" says Charlie.