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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