As clearly highlighted by the Brexit induced currency volatility, UK based importers and exporters have their own challenges when managing foreign currency cashflows. However, the approach to FX management is the same as how we approach it in New Zealand and Australia. Foreign currency cashflows (known or forecast) are identified and quantified, then hedging contracts such as forwards and options are entered to mitigate the impact of current fluctuations on P&L.

The UK, therefore, is a natural market for the Hedgebook software and as such we have opened a UK office in London. Wicked, innit?

London CityAs Hedgebook’s UK Client Relationship Director, Graham Dockrill, says, “The UK operates under the same IFRS accounting regime as New Zealand and Australia, plus the importers and exporters based here have an equally volatile foreign exchange landscape to navigate as those companies based in Australasia. Hedgebook is fit for purpose here in the UK and there are literally tens of thousands of companies in the SME space that can benefit from Hedgebook’s easy-to-use software. My goal is to introduce Hedgebook to these companies so they can manage this significant risk to their businesses and make better hedging decisions.”

Click here to view Graham’s contact details

The dairy industry remains the back-bone of the NZ economy with annual exports in excess of $11 billion. Waikato Milking Systems is an award winning (2016 ExportNZ Exporter of the Year) manufacturer of dairy technology used to increase the efficiency and productivity of the milking process. Based in Hamilton, Waikato Milking Systems exports to more than 20 countries globally so naturally foreign exchange is a significant risk requiring close management.

Waikato Milking Systems

According to Richard Aubrey, Waikato Milking System’s CFO, “With currency exposures in USD, EUR, GBP and AUD the time had come to move away from relying on spreadsheets to manage the company’s foreign exchange risks. Hedgebook provides an easy-to-use system for the finance team, strengthens our internal controls and provides clear visibility over our hedging position. Using information from Hedgebook we can easily provide the sales teams with FX assumptions when pricing new business opportunities.”

Hedgebook looks forward to working with Richard and the team.

New compliance rulesThe global financial crisis was the catalyst for a myriad of changes in the regulatory environment of derivatives. From Hedgebook’s perspective it is the changes that relate to the fair value of financial instruments that is particularly of interest. Although banks have been reporting CVA and DVA for a number of years, it is only over the last couple of years that we have seen greater numbers of end users/companies doing so.

Alongside CVA and DVA within the family of derivative valuation adjustments sits FVA (Funding Valuation Adjustments). FVA is an adjustment to the risk-free valuation of financial instruments and reflects the bank’s funding and liquidity cost of a trade. Until recently, the reporting of FVA was only for the bank side and not included in mark-to-markets sent to the customer. However, as of March 2016 Westpac has been including FVA within the valuations of interest rate swaps sent to the customer.

Hedgebook’s understanding of the accounting standard (IFRS 13) is that end users are not required to report FVA in the accounts, therefore, for those companies relying on Westpac’s valuations they may be reporting incorrect valuations. It is a question for the auditors, although it is fair to say that there is even less audit consensus (understanding?) on FVA than there is on CVA/DVA. It will be interesting to see if any of the other trading banks follow Westpac’s lead and include FVA into derivative valuations and what it means for companies relying on these valuations for financial reporting purposes.

Kapiti Coast District Council (KCDC) has been a Hedgebook client for almost two years. Originally Council’s requirement for Hedgebook was to perform the independent valuations of its interest rate swap portfolio at 30 June financial year-end, including the sensitivity analysis for +/- 100bps. Independent valuations are required by KCDC’s auditor hence reliance on bank valuations is not acceptable. Beyond valuations the finance team has taken advantage of some of Hedgebook’s other functionality such as interest accrual and cashflow reports to assist in the day-to-day management of derivatives and debt. Says Mark de Haast (Financial Controller), “I am super impressed with Hedgebook and cannot wait to see the new developments.”

At Hedgebook we listen to the feedback of our users to ensure future development is practical, useful and simple to use.

It was a fantastic two days rubbing shoulders with the Local Government finance community at the recent SOLGM Strategic Finance Forum in Wellington. It was an opportunity to listen to some of the inspiring initiatives going on in the sector such as the Hamilton City Council/Downer Waikato Infrastructure Alliance and the Gisborne District Council presentation on its business intelligence software.

Gisborne DC’s presentation resonated particularly strongly with us at Hedgebook as it was a practical example of how Councils can leverage technology to work smarter.

Hedgebook is designed with a strong focus on the New Zealand Local Government sector. Our latest update to the software adds the ability to include LGFA Borrower Notes as a companion to the LGFA Loans functionality that was completed in January.

Councils now record all debt information (LGFA, bank, private placements, term borrowings), including LGFA borrower notes, alongside the interest rate swaps used to manage the fixed interest rate profile.

Councils use the simple and intuitive Hedgebook system to:

  • Confirm BKBM rate-sets against bank notices = better internal controls
  • Manage cashflows arising from debt and interest rate swaps = better internal controls, improved efficiency
  • Calculate month-end interest accruals = saves time
  • Calculate interest rate swap valuations for key reporting dates = improves compliance, know your position
  • Run sensitivity analysis for financial year-end reporting = improves compliance reporting
  • Compare hedging against Treasury Policy limits = strategic decision making, closer collaboration with advisors
  • Move away from error prone spreadsheets

At SOLGM we met many existing Hedgebook clients and many potential new ones too. Hedgebook is already the most widely used treasury management system in NZ from both a Local Government and corporate perspective.

North Island Quote3

If you would like one of the Hedgebook team to take you through a 20 minute on-line demo of the system then just click here and we will be in touch to arrange it. Alternatively, if you would rather explore the functionality for yourself click here for your free trial.

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