Brexit: How Your Treasury Peers Are Managing the Latest Currency Crises
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Deloitte 2016 Survey: Challenges in managing FX risk
2
Deloitte. 2016 Global Foreign Exchange Survey.Source link: http://www2.deloitte.com/us/en/pages/advisory/articles/global-foreign-exchange-survey.html
Original Euro Zone Member BreachesLack of visibility ofFX exposures and reliability
of forecasts
Emerging market/restrictedcurrency market volatility
Manual exposureIdentification and capture
processes
Business unit understanding
Inadequate treasury orfinancial risk management
systems
Ability to analyzeexposures and measure
hedging results
Hedge accountingcompliance
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Euro Crisis
Q1 201
1
Q2 201
1
Q3 201
1
Q4 201
1
Q1 201
2
Q2 201
2
Q3 201
2
Q4 201
2
Q1 201
3
Q2 201
3
Q3 201
3
Q4 201
3
Q1 201
4
Q2 201
4
Q3 201
4
Q4 201
4
Q1 201
5
Q2 201
5
Q3 201
5
$0
$5
$10
$15
$20
$25
$30
$35
$0.02 $0.06 $0.09 $0.94$3.00
$20.27$22.73
$4.19 $3.67 $4.10 $4.18$5.83
$3.26$1.21
$4.00
$18.66
$28.94
$19.29
$33.94
(Bill
ions
)
North American Negative Currency Impacts By Quarter (Billions)
Source: FiREapps’ Quarterly Currency Impact Report: Available at fireapps.com
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Q4 Per Company EPS Impact was Highest Ever
Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 $-
$0.02
$0.04
$0.06
$0.08
$0.10
$0.12
$0.14
$0.03 $0.03 $0.03
$0.05
$0.03 $0.03
$0.06
$0.08
$0.03
$0.12
$0.07
7
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Top 5 Currencies Referenced By North American Corporates as Impactful by Quarter
8
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2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
0%
20%
40%
60%
80%
31%
40%39%
24%23%
33%
14%19%
26%26%25%
47%41%
23%
46%
63%64%
50%49%50%
Euro Crisis
Source: FiREapps’ Quarterly Currency Impact Report: Available at fireapps.com
North American Corporates Fielding Analyst Questions After Reporting (-) Impact
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Brexit Storm…more to come?
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Brexit Takeaways
• The new norm of FX volatility• The old rules no longer apply• Systems and processes more than 5 years
old are quickly becoming obsolete • Need complete data, timely analysis &
transparent processes• Take definitive action: Structural,
operational and financial
12
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How Should I Be Preparing?
• Leverage automation and analytics for ”push-button” insight into exposure and risk across entire portfolio of currencies
• Perform multiple scenario analyses and communicate the outcomes clearly
• Take a step and ask: Is our current risk management policy adequate to deal with the ”new normal” in the currency markets?
• Know where to get the answers to 5 questions that every CFO/CEO will be asked
• Develop a CFO Flash Report
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How FiREapps Clients reacted during the Brexit Crisis
…Business as usual • More frequent snapshots of exposure
and hedging• Intentional reduction of GBP exposures
– Cash conversions– Intercompany settlements
• Fast communication of recommended actions internally to management
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Learnings from FiREapps Clients
A robust analytic environment is essential to be able to react in times of volatility• Sharing actions already in place was reassuring• Focus was typically on FX Gain/Loss Line• Need to understand the complete currency impact
across Income Statement• Many firms are still assessing impact of translation• There was surprise about the breadth of currencies
that were impacted in addition to GBP
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What is Rapid Response Analytics
Helping Treasurers and CFOs prepare for any eventuality by:• Delivering initial GBP related exposure details
in days, not months.• Providing the visibility to quickly eliminate GBP
exposure organically (without external forward hedging).
• Offering a clear, fact-based path to sensitivity and scenario analysis for exposures impacting the income statement and balance sheet
Learn More
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5 Questions CFOs/CEOs need to answer post-Brexit?
1. What are our current exposures and risk across all currencies?
2. What will the impact of these recent moves be on a go forward basis? What happens if CNY, GBP, EUR all move further?
3. What was our hedge coverage prior to Brexit? Were our hedges effective?
4. What natural hedging abilities do we have? 5. What are our current impacts (- or +) as a result
of the Brexit-driven moves?
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