BLOG
Insight to All Things Currency and Treasury Management

Earlier this week, Tennant Company’s Senior Treasury Analyst, Jon Vincent, took the stage at Minnesota AFP in St. Paul, Minn. with FiREapps VP of Account Management, Neil Griffiths, to discuss Tennant’s overhaul of their legacy FX program and the creation of their risk committee.

Tennant’s pre-automation environment drove them to implement a technology solution that was customizable to fit their evolving needs.

 

 

Tennant’s Pre-Automation Environment

 

  • Expanding global footprint
  • Currency volatility was impacting their bottom line
  • Three treasury professionals managing the program
  • 30 percent international revenues (less than 80 countries) and total revenues of $750 million
  • Hedging balance sheet program only

Milestones to Automation

 

Milestone 1: Cross-functional Collaboration

To drive cross-functional collaboration, Tennant developed a Foreign Currency Risk Management Committee.

  • Tax was responsible for ensuring tax-efficient, intercompany cash flows and legal structures
  • Accounting was responsible for ensuring that accounts and processes are consistent and standardized globally
  • Legal was responsible for ensuring that the company’s risk management program is in line with compliance regulations
  • Treasury was responsible for exposure identification and analysis, hedging strategy, execution and measurement of effectiveness
  • The committee was responsible for driving a new, automated program and continues to assess program needs quarterly

 

Milestone 2: The Road to Risk Management

 

 

Milestone 3: Creating an Automated Workflow with FiREapps

Evolving FX regulations pushed the committee to develop a more rigorous program and create a risk management roadmap.

 

 

The Post-Automation Environment

 

  • Tennant was able to build a robust, customizable FX risk management program that rivaled that of multinational companies twenty times their size
  • Eliminated 42 percent of exposure through organic methods, including exposure offsetting and netting, as well as legal entity restructuring
  • Identified 21 different currency pairs
  • Treasury, tax, legal and accounting could conduct cross-functional collaboration
  • Visibility and analytics enabled Tennant to reduce FX exposures organically by $25 million

Leveraging Cost and Risk Efficiency (CoRE™) Analysis

 

In their current environment, Tennant’s treasury team utilizes the CoRE analysis to determine the cost of hedging individual currencies as compared to the amount of risk that would be reduced by placing hedges.

 


 

With CoRE Analysis, Tennant can:

  • Discuss hedging options with their risk committee, then decide which currencies should or should not be hedged
  • Quantify their exposure and determine the potential impact onearnings
  • Identify opportunities to manage risk for the least cost and/or greatest potential economic return
  • Optimize the level to which treasury can manage currency risk given the potential interest income or expense associated with management

 

The Journey to Complete Automation: What’s Next

 

Since acquiring IPC in April of 2017, Tennant has been working to get a better handle of IPC’s FX and is getting ready to integrate its data into their current risk management program to get a better understanding of new exposures. As the company has grown and improved their FX risk management program, the treasury team is looking to leverage cash flow exposure forecasting software and a business intelligence tool like FiREappsBI™ to gain improved reporting, dashboards and visualization that can be shared with business and management.

 

 

Jon Vincent’s Top 6 Recommendations for Treasury Executives Looking to Overhaul Their FX Program

 

  1. If necessary, decide as a company what is the most important risk to manage – balance sheet or cash flow
  2. Define tolerance levels by currency risk
  3. Evaluate different hedging alternatives and time horizons
  4. Automate what you can, it can be very important in the future (As was the case with Tennant’s acquisition of IPC)
  5. See the process though. The job doesn’t stop with placing the hedges
  6. Partner with experts to continue to build your FX program

To learn more about Tennant’s FX journey that resulted in a $25 M cut in exposures, download the Tennant Case Study.

If you are looking to assess the current state of your program and develop a personalized solution, FiREapps can help.