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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

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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