Optimising Hedging Cost Management

Avery Dennison

FX hedging costs at global materials science and manufacturing company Avery Dennison needed reining in further. With most other methods already deployed, it turned to a very modern take on VaR to achieve the required results. For its achievements, the company was shortlisted for the Dutch Association of Corporate Treasurers (DACT) Annual Award.

Avery Dennison is a US-based multinational firm specialising in the design and manufacture of labelling and other functional materials. It operates in more than 50 countries, generating revenues of more than $9bn (2022).

The company’s global set-up means FX hedging is an essential treasury responsibility. However, the cost of doing so is always under scrutiny. Even though it has already deployed a wide range of mechanisms to try to manage the forward points of its contracts – including reducing exposures, competitive pricing through a multi-bank electronic trading platform, and establishing STP – treasury felt pricing was not optimal.

The first cost-management approach the team took was based on guidance from two of its relationship banks. The advice was to use an efficient frontier approach to save on forward points with an acceptable Value-at-Risk (VaR). Later dubbed VaR 1.0, this hedging approach was implemented in Q1 2019.

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