Treasurers improve FX risk visibility

NTT Data, Mondelez and Citrix have taken different approaches to tracking FX exposures. Ben Poole and Bija Knowles report.

For multinational companies with businesses scattered across multiple jurisdictions, understanding FX risks – let alone managing them – is a full time challenge. Treasurers from companies such as NTT Data, Mondelez and Citrix have taken different approaches to the problem, according to presentations at the International Treasury Management conference in Geneva.

Brenton Green, NTT Data

Japanese IT services company NTT data, which reported net sales of $15 billion last year, found that its businesses were too preoccupied with other priorities to focus on FX risk.

“We were in a situation where the business units did not fully understand their FX risk exposures,” said Brenton Green, head of tax & treasury EMEA at NTT Data. “Treasury looked into it and these exposures were equal to between 5-7% of their revenue. Our FX risk model approach was to educate the front end of the sales cycle, so they could manage these. If for any reason they can’t, treasury will step in and hedge accordingly. About 80% of the EMEA region’s exposures are now hedged.”

Mondelez, the US-based food and beverage multinational generated over 75% of its $26 billion revenue outside the US. With a presence in more than 80 countries, the company had approximately $4.5 billion in annual net FX exposures. Its main FX exposure is the cost of goods sold (commodities such as cocoa, dairy, wheat, oils and sugar) and conversion costs.

According to the group’s senior director of global treasury operations, Jana Kottasova, the key challenges are identifying FX exposures, including gross vs. net exposures, indirect exposures and intercompany exposures. Kottasova explained that the company’s priority is to protect the P&L from risk. She said: “Our aim is to protect the business, not to speculate.”

US multinational software firm Citrix, which earned $3 billion of revenue last year, has customers in 100 countries and, as the company’s director of treasury, Bruce Edlund,  explained, the company had been getting a lot of volatility in FX results due to gaps in the balance sheet hedging process. All the firm’s entities worldwide are US dollar-functional; it does cash flow hedging of expenses; balance sheet hedging of monetary assets/liabilities.

Edlund said: “We hedged all of our material exposures, but at the end of the month our actual exposures sometimes ended up being very different from what we had forecasted. So we looked at some third-party solutions and we were able to automate the process of getting our exposure data from [software vendor] SAP. The third-party provider helped us with a consultative approach to forecast the balance sheet for next month, as opposed to taking the exposure from the previous month and hedging that.”

These treasurers might be envious of the position of Japanese footwear company Asics, whose treasury says it has full visibility on a significant part of its FX risk.

Marco Schuchmann, group treasurer, Asics Europe, said that the company, which manufactures its products in Asia, has a huge US dollar exposure and is doing a long-term hedging programme, using forward hedges in an automated process: “I know exactly what my US dollar exposure is for the next three years. The hedging calculation is all done within SAP.”