12 Feb, 2018 (Updated 15 Feb, 2018)
Following an in-depth analysis, Nordea suggested currency forward contracts as a way to minimize currency risks.
CR Competence offers problem-solving in the field of chemicals to clients around the world. On the advice of Nordea, the company has now changed its currency strategy, allowing it to focus on its core business, while the risks associated with currency management have been reduced.
Since most of CR Competence’s costs were in SEK, CEO Anna Stenstam was initially keen to invoice foreign clients in SEK as well. However, this was not popular with clients.
We just had to accept that our clients wanted to be invoiced in their own currencies, but this created other challenges for us
“We just had to accept that our clients wanted to be invoiced in their own currencies, but this created other challenges for us,” says Stenstam.
Stenstam has a PhD in physical chemistry from Lund University in southern Sweden. In 2005 she teamed up with research colleague Karin Bryskhe to establish the consultancy firm Collodial Resource, which carries out research assignments in the field of chemistry. The business has now been divided into two companies: CR Development and CR Competence.
The business concept is based on solving problems related to chemistry. This could mean anything from pharmaceuticals to solar panels, shampoo or bedbugs.
“Our client might have a vision of acquiring a new patent, or maybe they’ve recently changed their production location from China to India and suddenly there are glitches in every other batch,” explains Stenstam. “Perhaps they’re trying to replace an ingredient with something more eco-friendly, but then the product may become unacceptably sticky.
“Our services take the form of various kinds of problem-solving and advice,” she says. “Part of the service is carried out in a laboratory, after which we come up with a proposal based on the data we have gathered.”
Currency management is a challenge
CR Competence is based at Kemicentrum in Lund, but much of the business is carried out at other locations. The clients are mainly located in Europe and the United States. Assignments can continue for extended periods, which means that currency management is a challenge.
“For a long time we tried invoicing for our international assignments in SEK,” Stenstam says. “It was my way of knowing what we would get paid, and it felt more secure. We subsequently switched to getting paid in local currency, because that’s what our clients wanted. But this raised the issue of what exchange rate we would use, because a project can take an entire year from start-up to completion. Sometimes we made gains on exchange rate fluctuations, but sometimes we sustained losses. However, managing securities is not part of our core business.”
Company partner Nordea understood CR Competence’s problem and came up with a proactive suggestion.
“During one of our regular meetings, Nordea’s contact, Sebastian Wright, showed us some analyses based on our figures,” Stenstam recalls. “He had also carried out an assessment of the currency risk we were exposed to and wondered if I thought it was defensible. It wasn’t exactly a disaster, but I still wanted to reduce the risk further.”
Following the in-depth analysis, Nordea suggested currency forward contracts as a way of minimising currency risk.
“Exchange rate fluctuations are a risk for all companies trading with other countries,” explains Kristoffer Svensson, Sales Manager at Nordea. “The extent of that risk depends on the unique circumstances of the business.
“A currency forward contract is an obligation to buy or sell a currency at a predetermined rate on a particular future date,” Svensson explains. “This safeguards future currency flows, because the exchange rate has been determined in advance. A solution like this allows the company to focus on its core business instead of indirectly speculating on the currency market.”
CR Competence now uses the currency forward contract solution, although mainly for large assignments. Anna Stenstam advises other company owners not to shy away from trying out this kind of model, particularly if their business is project-based.
“This flexible solution gives me peace of mind,” Stenstam says. “I’m glad Nordea made the suggestion. I genuinely think that you need to consider what risks you’re prepared to accept in your business. As far as CR Competence is concerned, I’d prefer to take on risks that develop the company rather than currency risks.”
3 tips for more effective currency management
from Kristoffer Svensson, Senior sales Manager, Nordea Markets
Take and make payments in local currency; no one wants to do business with an awkward company. Getting paid in local currency means your customers always know how much they’re paying, and you may get better prices from your suppliers if you pay in local currency.
Easily manage currency risk. Simple solutions are available for most issues concerning currency risk. Avoiding unnecessary risk helps protect your core business from external factors.
Be prepared to ask for help before you start doing business with other markets. It’s important to understand how things work in other countries and cultures. This might relate to things like different ways of operating, traditions and regulations.
To get help with your currency strategy and evaluate your opportunities for a more profitable currency management, contact us for more information at the nearest Nordea offices or at the below phone number and email.
SWEDEN Tel +46 8 407 9499 Email email@example.com
DENMARK Tel +45 3343 9786 Email firstname.lastname@example.org
NORWAY Tel +47 2248 7760 Email email@example.com
FINLAND Tel +358 9 369 50460 Email firstname.lastname@example.org