FX Exposure Managementnyce.tmany.org/2013/wp-content/uploads/2013/01/... · FX Exposure Management...
Transcript of FX Exposure Managementnyce.tmany.org/2013/wp-content/uploads/2013/01/... · FX Exposure Management...
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FX Exposure Management
How the Cloud is
Leveling the Playing Field
For Mid-Market Enterprises
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• Introductions
• Corporate FX market trends
• How the cloud is leveling the playing field
Hubbell case study
• Questions and Answers
• Resources
Agenda
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Introductions
• Andy Gage Vice President of Strategic Market Development at FiREapps, where he advises
corporations, consulting firms and business partners on a wide range of foreign
exchange exposure management topics and emerging industry best
practices. Prior to his tenure at FiREapps, Andy has held management
positions at Cyclone Commerce, Deloitte Consulting and Syntex
Pharmaceuticals. Andy holds a B.S. in business administration from the
University of Arizona and an MBA from the University of Texas, at Austin.
• Howard Wardlow Howard has been employed at Hubbell since 2002. He was appointed Director
of Finance and Treasury in 2011. Prior to this appointment, he enjoyed a
successful career in finance, encompassing broad corporate finance and
treasury operations assignments in the industrial, financial services and retail
business sectors. Howard holds an MBA from Sacred Heart University, John F.
Welch College of Business, a BS, Finance from Fairfield University, Charles F.
Dolan School of Business, and the AFP’s CTP certification.
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Currency Risk is Business Risk
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Analyst Questions on FX Getting Tougher
5
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• Volatility, uncertainty and
globalization have increased risk for
Corporates: – Bigger swings post 2008 with more sensitivity
to global economic trends
– Projecting future costs and revenues
increasingly difficult
– Multi-national expansion through suppliers,
distribution and subsidiaries creates risk
• Currency impacts are on the rise – $50B impact in 2012 on 200 companies
– FX materially impacted results in 2012
– Understanding exposure is key challenge
– Analyst scrutiny and impact on EPS growing
• Legacy processes and systems are not
keeping pace – Currency markets require on demand
visibility of risk
– Single, trusted truth for exposures critical to
effective risk management
– Hedge decisions need to be timely, effective
and cost efficient
FX Exposure Management is Changing Currency Risks Eroding Profits at Alarming Rates
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• Raise the bar on risk management
as a driver of shareholder value
• Involve the risk organization in
key decision-making processes
• Improve the sophistication of
measurement and modeling
• Integrate risk management
capabilities across the
organization
• Establish a dedicated risk
executive with oversight and
visibility across the business
Source: The Risk Masters, Accenture 2011
How are Strategic Treasurers Responding?
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Senior Management Needs Answers Now
How will currency fluctuations impact financial results? What is your exposure? What is your risk? > $.01 EPS? How comfortable are you with that risk? What actions are your taking?
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FX G/L on Exposure Data (Accounting Systems) (Controller)
FX G/L on Derivatives (spot) (Treasurer)
Exposure Management Efficiency (Should net to Zero)
Derivative Cost/Benefits (Fwd Points)
FX Gain / Loss on P/L (CFO Focus)
FX Gain/Loss: The Problem
FX Gain / Loss on the Income Statement is the result of netting the gain/loss on accounting
exposures and the gain/loss on hedges that the Treasurer executes. In theory, the
gain/loss on exposures and the gain/loss on derivatives should net to zero. In reality, this
is rarely the case, and the Treasurer has very little control over the corporate FX Gain/Loss
that he/she is responsible for reporting to the CFO
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Business Units
Corporate Controllers
Process Challenges
Several days
Banks and Trading
Platforms Complex Exposure
Reporting Spreadsheets
Controller Treasurer
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What Does it Take to Get & Keep FX Predictability?
Increase Confidence
Increase Hedge Effectiveness
Reduce Transaction Costs
Improve Operational Efficiencies
FX Gains and Losses
$.01 EPS @ Risk is senior management’s expectation
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Case Study: Hubbell, Inc.
Bringing FX Best Practices to the Mid-Market
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Hubbell Inc. Company Background
We will focus on results using our
lean methodology
to establish industry leading processes
We will grow our
organization through
new product innovation
and acquisition
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Challenge Reduce FX Gain/Loss Volatility
• In the past five years, Hubbell has grown largely through acquisitions
• This drove new FX exposure and risk across US, Canada, Puerto Rico,
Italy, Brazil, Switzerland, China, Mexico, Australia, and UK operations
• As currency volatility increased and remained elevated, Hubbell
averaged $2 million in FX gain/loss volatility in the P&L statement
• Treasury did not have a rigorous FX process in place
• Impossible to efficiently identify, analyze, and mitigate the FX
exposures impacting financial results.
• Limited resources and a complex ERP landscape made up of SAP and
multiple other general ledger systems introduced via acquisitions
Slide 14
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Hubbell Exposure Analytics Process
Exposure Data
Sources:
Slide 15
Initial exposure visibility from core SAP system in weeks - rolled in
remaining systems and subsidiaries within two quarters per plan
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Analyzing Cost/Benefit of Managing FX Risk
Slide 16
FiREapps’ patented Cost and Risk Efficiency (CoRE™) Analysis benchmarks current FX exposure,
determines potential impact to earnings, and provides recommendation to reduce risk and costs.
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Hubbell’s Success in Just 2 Quarters
• Quickly identify and analyze true FX exposure, including new exposures introduced by international acquisitions
• Institutionalise data integrity processes
• Exploit immediate opportunities to organically eliminate exposure from open foreign currency transactions that affect balance sheet accounts
• Reduce FX gain/loss volatility to protect earnings and EPS with predictability and confidence
• Begin managing FX risk across currency pairs within the cost/benefit parameters defined by Treasury
• Establish a scalable foundation for ongoing, currency-agnostic FX risk management and financial operational excellence
Slide 17
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Questions and Answers
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http://www.youtube.com/user/FiREapps
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Thank You for Your Time