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Increased negative currency impacts followed European companies into 2018, with companies reporting a 237 percent increase in quantified impacts from Q4 2017.

A benchmarking tool for corporations, the FiREapps Q1 2018 Currency Impact Report™ (CIR) shows a collective quantified negative currency impact to both North American and European companies of $22.93 billion.

European companies accounted for $22.89 billion of this impact, more than tripling the quantified impact reported in Q4 2017.

Surprisingly, even with this dramatic increase from Q4 2017 to Q1 2018, the number of European companies reporting any impacts due to FX was down 10 percent. However, the number of European companies overall that quantified their impacts increased between the two quarters.

Conversely, North American companies saw a $1 billion decline in quantified negative impacts from Q4 2017 to Q1 2018. This may be attributed to the ever-decreasing number of companies reporting and quantifying negative currency impacts of which there was a more than 50 percent decrease in the number of companies reporting between Q1 2018 and Q4 2017 and a more than 60 percent decrease in the number of companies quantifying their negative impacts.

What Currencies are Impacting Companies?

What FiREapps has found, is that while many companies focus on hedging against the currencies that they do the most business in, they are often left susceptible to unexpected – and sometimes more substantial – hits from smaller currencies that can sometimes be the most impactful. While it is logical to protect against the most common currencies business is done in, small movements in less protected currencies that not as much business is done in can catch a company off guard and impact earnings in ways they were not expecting.

Case in point, in Q1 2018 the most volatile G20 currencies were the South Korean won (KRW), Indian rupee (IDR), Argentine peso (ARS), Chinese yuan (CNY) and Brazilian real (BRL). And while a lot of international business is done in CNY, it is less likely that North American and European companies are doing large chunks of business in some of the other currencies that were mentioned as most volatile and therefore are likely not spending as much time protecting against those currencies.

Without access to the accurate, complete and timely exposure data that they need, companies are often left blind to exposures from smaller currencies that pose greater risk and only learn about them once the damage is done.

Currencies Most Referenced as Impactful by North American Companies

For the third consecutive quarter, North American multinationals named the euro as impactful currency.

Currencies Most Referenced as Impactful by European Companies

The euro continues to be most impactful for European companies as well, with more than 50 percent of companies reporting on its impact during Q1 2018 earnings calls.

The Most Impacted North American Industries

1. Electronic Instruments
2. Scientific & Technical Instruments
3. Semiconductors
4. Chemical Manufacturing
5. Oil Well Services & Equipment

The Most Impacted European Industries

1. Chemical Manufacturing
2. Misc. Capital Goods
3. Auto & Truck Parts
4. Biotechnology & Drugs
5. Electronic Instruments & Controls

THE BOTTOM LINE

The continued rise of negative currency impacts to European companies (and the dramatic increase that was seen this quarter) solidifies the continued importance for multinationals to manage their FX risk – better exposure management leads to less negative financial impact from currency fluctuations.
To learn more about how North American and European multinationals were impacted by FX, download the FiREapps Q1 2018 Currency Impact Report.