A Sporting Hedge: currency and the bottom line

“Unpredictable” isn’t a term you often hear volunteered by c-suite executives.

But when you’re Cricket Ireland, the national governing body for the sport across the island of Ireland, whose cost base straddles the pound and euro but whose revenue usually comes in US dollars (USD), the remarkable everyday challenges, opportunities and demands presented by currency volatility starts to make sense.

Especially when that volatility is fuelled by back-to-back “once in a generation” events.

“Cricket Ireland is an all island organisation that operates both In ROI and NI and hosts numerous events in Dublin, Belfast and Derry/Londonderry,” says CFO Andrew May.

“Our GBP/Euro cost base can vary greatly year on year, depending on the number of matches that take place in Northern Ireland (NI) or the Republic of Ireland (ROI).The majority of our revenue stream is in USD and during the period 2016 to 2019 this practically doubled in value - mainly due to our elevation to a full member of the International Cricket Council (ICC),” he recalls.

Not only that, but the timing of USD payments against outlay in euros or pounds regularly adds another layer of complexity which can be unpredictable and can lead to lumpy cash flow balances.

“Having such a significant amount of revenue in USD and a cost base in euro/sterling, we are susceptible to a weakening USD which, if not managed correctly could and can lead to hundreds of thousands in FX losses,” May notes.

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Three part challenge

“Our challenge is to manage our USD/EUR, USD/GBP & EUR/GBP exchange rates along with timing of receipts versus cash outflows.”

One of May’s key tasks before the start of the year is setting a budget exchange rate.

“Getting this wrong can cause serious issues during the course of the year if the market moves against you,” he adds, noting separately that a 2 or 3 basis point fluctuation in USD has the potential to increase costs by up to £500,000.

“Clear Treasury has been able to provide excellent FX outlooks and forecasts which has helped greatly in setting rates.

“At the same time, we would work closely with Clear in developing the FX strategy for the coming year and how we manage our receivables and payables throughout the year.

“This allows us to enter into various FX Forwards to de-risk our budget rate while still allowing some upside.  This brings our Board a great deal of comfort in the knowledge that we are guarded against large movements in the market.”

“Month to month, we have numerous smaller FX deals that we need to be pushed through on a fast and efficient basis while also receiving a competitive rate.”

Clear Currency became the official currency partner of Cricket Ireland in 2018, just as the international political maelstrom surrounding the triggering of Article 50 was picking up pace.

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Game on

But it was during the unprecedented events surrounding the Covid pandemic that May believes Clear became a fundamental part of the team.

Cricket Ireland was one day from releasing its May fixtures when the pandemic hit, and over the course of the coming months would normally have played matches in both Northern Ireland and England.

“Expecting reasonable ticket sales, we had factored in higher sterling income and expenditure,” May says. “Meanwhile the ICC was offering additional support in USD.”

“Our revenue mix changed significantly and the circumstances we found ourselves in brought with it complete uncertainty around timing of income. Our work with Clear partly involved addressing our six outstanding contracts, 50 per cent of which were successfully removed or reduced without financial impact.

“We also had the USD/EUR/GBP triangulation and were trying to work out whether to take a USD/GBP hedge or a EUR/GBP one.

A big part of our strategy with Clear was deciding our position on value for money in the marketplace and, again, we decided to leave a certain amount to market movement so we would still gain on any upsides but with little exposure.”

Clear’s responsiveness and flexibility became even more crucial during Covid, he recalls.

“Having used both banks and broking services in the past with various institutions, I feel it very much boils down to the organisation and people you are dealing with. Having good advice and support on tap is key. A responsive broker is paramount.

“It is a great comfort to know that a broker is thinking of you when they contact you if there is a major movement on a currency or an announcement will be taking place which may bring volatility into the market.”   

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