How Fintech Helped Mettalis to Prosper in Difficult Times

by Humayun Sheikh, CEO, Mettalis

The manufacturing industry has been going through difficult times; recently the Confederation of British Industry revealed that manufacturing suffered its biggest decline since 2009 in the three months to March. While the report did highlight the fact that production is expected to rebound over the next three months, the steel industry in particular, still expects to see steel usage in China dip around 2% this year and the slump in oil to continue to pull down prices. However, while we’ve faced our fair share of industry troubles, I’m proud to say that we have managed to grow as a business despite these difficulties.

How have we achieved such a prosperous business journey, in the face of adversity? The answer is by embracing new technologies and operating processes - and this is where Kantox stepped in.

A change in direction

As the metal recycling industry is one of the oldest industries, it’s perhaps no surprise that the sector hasn’t moved into the modern day – but we wanted to be at the forefront of change despite this stagnant environment. Our first step was to acquire the UK interests of the Dutch firm Van Daalen, a relatively bold move, as this is a company fifteen times our size. In just two years, our turnover increased from £1m to £55m and our daily volumes rocketed from 2,000 tonnes to 19,000 tonnes of metal.

To demonstrate that we are an innovative and strong business, we also started investing in domestic production facilities to be more self-sufficient. Due to the lack of domestic processors in our market, this was a vital move for us as a business operating in the UK – although scrap is generated in huge quantities, it’s still largely exported, meaning production outputs are reduced.

New challenges

As a company, our business model takes account of shifting commodity prices, and it’s a daily struggle to avoid letting the fluctuating exchange rate eat into our profit margins. With recent extreme market swings, this has provided a constant challenge for our CFO, Mohammed Rizwan. We were determined not to let this hinder our chances of success, and soon realised that we needed the outside support of an expert in currency. We now find ourselves taking calculated risks, and making active investments to fuel growth, with third-party support from Kantox.

Finding the right FX expert

Many companies would instinctively approach their bank for advice in this area, but we were concerned that the initial rate that the banks were offering us wasn’t a price that would stick, and feared that we’d be burdened with higher charges as time went on. Thanks to the latest advances in technology, we were able to access the live mid-market rate. This meant that we could easily compare bank, broker and platform rates online through benchmark services.

By using a transparent, forward-thinking fintech provider, we were able to avoid the opaque fines and fees of banks and brokers that we had previously encountered, but we are still able to depend on expert FX advice from Kantox. In our first transaction with Kantox, we secured a rate of 30 pips better than the rates provided by our former provider.

Kantox’s transparent operating platform allows us to access detailed information on exchange rates and transactions fees. The regular pricing scheme was also a key draw for us – as our transaction volumes have grown, the commission has not, meaning we’ve still been able to grow.[[[PAGE]]]

Managing our FX

Our chief asset is steel and recycled metal, which is traded internationally in US dollars: therefore our operations depend on selling dollars to buy UK pounds. Last year, the strength of sterling proved a particular challenge as it impacted dollar-denominated revenue when we converted profits back into our home currency. When this issue arose, we worked with Kantox to take advantage of sterling lows, and to close forward contracts allowing us to exchange dollar revenue at a more appropriate exchange rate, ultimately increasing profit margins.

Working with an FX expert also helped us to define a clear FX strategy. Together, we took a scientific and mathematical approach, calculating exposure to threats in the market and hedging against them. By embracing FX technology, we can now monitor exposure on our real-time dashboard, and set currency alerts and automatic orders to notify us when the currency exchange reaches risky or optimum levels. We’ve coupled this with flexible forward contracts, allowing us to lock in favourable exchange rates and make transactions at any time during the year.

Continued support

One fear that we had when selecting a fintech alternative, rather than operating through a traditional bank, was that certain systems might  not be in place to keep up with our fast and efficient flow of goods. However, our concerns were soon eased. While banks only offer services such as SWIFT messaging on request, Kantox adds the SWIFT message to all of our transfers, free of charge. This code allows us to fully track the status of payments at any time during the process, and serves as proof of payment to our providers, which generally speeds up the delivery of the goods.

It is important that any growing company has the support processes in place for every area of business – for us, FX was key. In the last couple of months, there have been positive industry indicators showing we may finally see strength in the steel sector, but as with any area, this could change at a moment’s notice. So, in uncertain times, and when FX has been so noticeably opaque, it has been refreshing working with Kantox, who have proved that traditional providers are not always the best option in providing the services that we require.