Armour Homes use Lumon to help with overseas payments strategies to help control supply chain costs

Background and Currency Exposure

Armour Homes operates in the home audio sector, exposing the business to currency risks when paying Asian suppliers in US Dollars – an ongoing requirement, with orders made six to nine months in advance.

The customer was comfortable that their margins allowed for a reasonable degree of US Dollar strength without significantly impacting their profitability. However, they were not assured that favourable currency exchange movements were benefitting their margin. Additionally, they were aware that their suppliers were being impacted by rising copper pricing and could, therefore, demand a sudden change to their pricing. Locking in part of their currency exchange requirement at favourable rates would ensure Armour Homes could offset this potential impact.

We’re really happy with the trades.

George Dexter, CEO of Armour Homes

Previous Overseas Payments Strategies Before Lumon

Armour Homes had previous experience working with various overseas payments providers and products. They had chosen not to hedge their overseas payments risk throughout most of 2020 as they were aware of the uncertainty and volatility of the currency markets amid the pandemic. Consequently, the business remained exposed to the impact of uncertain currency movements.

Towards the end of the year, they purchased a portion of their US Dollar requirements over three months using forward contracts. However, this required them to place cash collateral with their overseas payments provider. The hedging period was also much shorter than the period from order to delivery and the period over which they had visibility of future US Dollar requirements.

Lumon’s Approach and Solution

By taking the time to understand their goals, we were able to help them move their money effortlessly, analyse currency risks and understand the myriad of options available to them – so they could focus on their day-to-day business needs and aspirations. Empowered by this customer-led approach – one that recognises the value of speed, safety, and price but values the human element as well – Armour Home was able to consider the impact of its currency exposure and the extent to which this would impact profit margins.

This led to further consideration on the visibility of future US Dollar requirements and the ability to forecast exposure over time. Consequently, the business could review their aims for their currency management, enabling them to consider the most appropriate timeframes for the maturity of their strategies – and whether these were aligned with the supply contracts and overall business objectives.

Lumon’s focused support – both from a technology and human perspective – helped them to understand the business risk and facilitated a series of forward contracts with a longer and more flexible profile than before. We provided the credit facility – which allowed the customer to hedge up to nine months exposure – without requiring upfront cash collateral to be placed, leaving their cash position unchanged. Existing lender relationships also remained intact, as we did not require access to any existing security.

The customer chose to execute a series of forward contracts, allowing them to hedge their monthly US Dollar requirements for six months. They can also extend the maturity of their strategies given the term of the credit facility offered.