A tried and tested team

Managing foreign exchange risk exposure

DAVID McWATT is a director of the fourth generation family-owned scrap metal business, John R. Adam & Sons. The company purchases ferrous and non-ferrous metals for processing into furnace feed for domestic and international smelters.

Founded in the East end of Glasgow, the company has been in business for over 100 years. Based now at Glasgow’s King George V Dock, it operates a high capacity, sophisticated shredding plant capable of processing in excess of 600 tonnes of steel per day. Much of the output is exported direct to Europe through the company’s deepwater sea terminal. Non-ferrous metals and other recovered materials are transported for recycling industrially in Europe and the Far East by lorry and container.

The company uses Bank of Scotland Treasury’s FX facilities to book forward contracts to cover its income, in Euros and other currencies, typically some 3-4 months ahead. Its FX usage is determined by scrap prices, demand and exchange rate drivers.

We’ve been dealing in the export market for 30 years. The market’s extremely volatile at the moment and we really want to make sure that we don’t get caught with currency that we haven’t sold. Normally we try and sell forward and we obviously look to the Treasury team to help us take the right view.

So, we look for daily updates from the Bank to make sure we’re making the right decisions. The problem we have is that we’re never very sure how much currency we’re going to get and when we’re going to get it. But we don’t want to gamble if we can help it.

There’s an advantage in having our corporate accounts with Bank of Scotland as well as conducting our FX dealing with their Treasury team – it means we can transfer funds very quickly. It gives us same-day access to any funds we’re converting with a forward contract, say, or an option.

If we were using another FX provider there’s a chance that we wouldn’t get the currency on the same day and sometimes – especially towards the end of the month when we’ve got a lot of money going out – it really is very important that we can get the money as quickly as possible.

And it helps that the Bank does understand the business. We look for a keen rate, and a quick service and for them to be available when we want to do business. We’ve always found that to be the case when we’ve phoned Treasury. And the people we deal with are always contacting us to see if we’ve got currency to sell and to alert us when the market is moving against us or in our favour.

We’ve tried other providers but the quickness of the response wasn’t good enough for us. We’ve also sold currency forward with other providers and found their rate wasn’t as keen as we got with the Bank of Scotland. So we ended up coming back to this tried and tested Treasury team.

David McWatt, John R Adam & Sons