Industry: Manufacturing

Abstract:

A leading provider of innovative merchandising systems for the retail and apparel industries with revenues in excess of US $1B had recently experienced a material impact to earnings as a result of foreign exchange volatility.  In an effort to improve earnings predictability and the efficacy of its foreign exchange program, the Treasury department was tasked with finding a fast, yet cost effective solution.

The Challenge:

The client had currency exposures from a wide range of sources.  In addition the people, processes and systems in place to support the management of these exposures were not adequately equipped to handle with the complexity. As a result, the Treasury team had to contend with the following issues:

  • Inaccurate Foreign Exchange Exposure Definition: The Treasury Department was ill-equipped to aggregate an accurate measurement of its foreign exchange exposures due the large number of reporting entities that were not on the central ERP system. 
  • Complex Intercompany Settlements:  The client had to contend with over 60 entities and a large number of associated intercompany payments and settlements.  The large number of intercompany transactions and relationships significantly added to the companies overall currency exposure and greatly complicated the effort required to manage the resulting exposures.
  • Ineffective Hedging:  As a result of not having an accurate understanding of corporate exposures as well as no transparency or collaboration between the entities and functional areas impacting foreign exchange exposures, the client’s attempts at hedging where largely ineffective.  In many cases, the hedges being applied contributed to increasing exposure versus reducing it.

How We Helped:

  • Exposure Data Capture:  With FiREapps™ being a Software as a Service(SaaS) solution available over the internet, it was very easy for all of the regional controllers and treasurers to upload their exposure data directly into the application.  For those entities that used the corporate instance of Oracle ERP the client was also able to leverage FiREapps pre-configured queries for extracting data directly from Oracle.  In addition to making it simple to gather the information, FiREapps also provided exception reports which indicated which entities had not uploaded their information during an exposure management analysis session.
  • In-depth Exposure Visibility and Understanding: FiREapps worked with the Treasury team to ensure that all of the accounts used to track unrealized FX gain and loss where being monitored by the FiREapps system.  As a result, it was easy to see at any given point in time the true currency exposure for the company.
  • Lower Costs: Through leveraging FiREapps optimized internal banking and decision management technologies, the client was able to reduce its external hedging requirements by 50% to 60%.  FiREapps made very easy to utilize more cost effective internal natural hedging alternatives such as clearing intercompany payments and converting cash.
  • Improved Hedging Program Efficacy:  Aided by the comprehensive exposure picture provided by FiREapps, the client was able to better align its use of external hedges with that actual underlying exposures.  This visibility made it very easy to ensure no over or under hedging situations occurred. 

Lessons Learned:

As a result of engaging with FiREapps, the client is now able to more accurately measure and manage its foreign exchange exposures.  This holistic approach assures improved earnings predictability and on-going cost savings.  In addition, by utilizing a combination of our professional services and our foreign exchange exposure management technologies, the client is able to maintain compliance and improve operational efficiency.