currency risk management for hexcel materials
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Currency Risk Management forCurrency Risk Management for
Hexcel MaterialsHexcel Materials
Authors: Kothandaraman Rengarajan (14)
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Hexcel MaterialsHexcel Materials
y
Worlds leading advanced structural materialscompany with global revenue exceeding $1billion.
y Four Product lines Carbon fibre
Reinforcements
Composite
Structures
y Financial stauts Revenue = $1.1 billion
YoY sales growth =8.1% Operating income margin =10.5%
Sales breakup with regionx US Market = 45%
x International Market = 47%
x US exports = 8%
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Type of currency used in businessType of currency used in business
y Currency used :USD, EUR, GBDy Duration: continous usage
y What kind of exposure?Tranaction,
economic,Translation (see next slides formore info)
y What is currency risk
The risk that unfavourable change incurrecny value , results in undesired
outcome of changes in cashflow,profit or
earnings.
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Currency risk Management for HexcelCurrency risk Management for Hexcel
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Currency risk for HexcelCurrency risk for Hexcel
Following are the risks for Hexcel
Foreign exchange risk due to markets served. Commercial aerospace USD dominated market
Manufactured in Europe Incure GBP/EUR cost
Sell in USD to airbus and other suppliers
Risk is impact of GBP/EUR vs USD rates
Transaction balance sheet exposure
Net investmenet exposure
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Types of currency exposure and measureTypes of currency exposure and measure
Transaction is the highest exposure , followed by forecasted and
Translation, economic in the later.
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Gather the exposure data from HexcelGather the exposure data from Hexcel
Income statement - Legal entities forecast by invoice currency
Annual forecasts Assume same exposure on all Quarters
Tracking actual performance against forecasting due to system
limitations
Trakcing hedge activity
FAS133 compliance
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ForexForex derivatives and when to applyderivatives and when to apply
Forward contract , Options and Swaps are commonly used . Here theHexcel information on how to apply those derivatives
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Hexcels policyHexcels policy
y Multi year horizon minimize variabilityy Layering approach
y Target Hedge ratios
Build over time
Ranges not single point
Accelerate when rates rally
Decelerate when rates go against us
y Challenge focus on spot improvements
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Challenges in Hexcels policyChallenges in Hexcels policy
y Hexcel needs to adopt policy for Currency risk management where the
risks have been mitigated and controlled.
y Following are the challenges we identified
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Recommendations to improve the strategyRecommendations to improve the strategy
3 Steps to detect and mitigate the risks1. Risk assessment
1. Assesse the risks properly
2. Focus the critical exposures
3. Use Scenario analysis or other methods
2. Strategic development
1. System development and support to get correct data from themarket
2. Measure the exposure using appropriate tools
3. Manage the exposure carefully
3. Implementation
1. Recommend policy and procedures for execution (next slide)
2.Track effectively3. Report efficiently to the stakeholder and loop back with the
derivatives selection.
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Implement strategic policy for CRMImplement strategic policy for CRM
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