Logifuture

“Before using Garton Global we traded with exclusively spot and rolling forward contracts. We never really considered the impact this had on our bottom line when markets moved substantially away from our budgeted level. After being introduced to Garton and discussing via zoom we committed to entering a quarterly layered hedging plan for the next 24 months. This has substantially reduced the uncertainly the business faces with over 70% of our overall turnover exposed to the EURUSD exchange rate and leaves us better positioned to forecast our profit margins way in advance.”

Background

Logifuture are a Malta based technology company with operations across the EU, Africa, Serbia and the UK. They focus predominately on the gaming sector, developing the software which underpins some of the leading brands including Betway, SBO Bet and Mozzart.

Problem

Dollars makes up a substantial proportion of Logifuture’s revenues, whereas the majority of their cost base is spread between the EU and UK. This leaves the company’s profitability sensitive to exchange rate swings. Having traded with a mixture of spot and forward contracts for the majority of their years in operation, several years of difficult market conditions forced them to re-consider their position. 2018 a year which saw the dollar depreciate by 15% seen profit margins take a substantial hit as the company had chosen to go unhedged for the year. Whereas early 2020 and the onset of Covid-19 seen the dollar significantly appreciate, this year however Logifuture had taken out hedges which quickly became uncompetitive in the relation to spot price, leading to substantial margin calls tying up cash flow in the business and significant FX losses reported at the end of the financial year.

Solution

Having been introduced to Garton in late 2020 discussions centred around a 24 month hedging plan which would require Logifuture to adopt a framework whereby hedges are topped up at the beginning of each new quarter. This would allow the company to secure their bottom line in the near term and start reducing some of the uncertainly they were exposed to over the long term whilst crucially not overcommitting in the event project flow was reduced. This approach gave them flexibility to respond to changes in the market and avail of a potentially improving exchange rate whilst ensuring they did not over buy or commit too much to one exchange rate which could leave them uncompetitive.

Outcome

Since implementing the quarterly layered hedging plan, Logifuture have never averaged a yearly exchange rate below their budgeted level. This has seen the company post an FX gain on their balance sheet each year whilst significantly reducing uncertainty relating to FX exposure. The approach has enabled them to smooth out the exchange rate achieved over the years and permitted the company to engage in more accurate financial planning.

Head of Treasury

Before using Garton Global we traded with exclusively spot and rolling forward contracts. We never really considered the impact this had on our bottom line when markets moved substantially away from our budgeted level. After being introduced to Garton and discussing via zoom we committed to entering a quarterly layered hedging plan for the next 24 months. This has substantially reduced the uncertainly the business faces with over 70% of our overall turnover exposed to the EURUSD exchange rate and leaves us better positioned to forecast our profit margins way in advance.”

Head of Treasury

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