FiREapps’s report on 1,200 publicly traded North American and European companies, large multinational firms with at least 15% international revenues in at least two currencies, showed that in 2014:

• North American companies reported $27.13 billion in total negative currency impact for 2014 –a 53 percent increase over 2013 ($17.78 BN)
• European companies reported $12.41 billion in negative currency impact for 2014 and $1.52 BN in Q4
• in 4Q 2014 many corporates who never before reported a currency hit, reported one. Additionally, there was a significant increase in the volume and complexity of questions coming from the analysts and the market, many of which indicate(d) a systematic inability to identify and quantify exposure
• the percentage of companies fielding analyst questions about currency rose to all time highs, e.g. 63% of North American companies and 68% of European companies reporting currency impact fielded currency impact-related questions from analysts
• in Q4 2014 impact on EPS in North America averaged $.06—almost 2x the 2013-2014 average; AND this is more than six times the less than $.01 EPS impact management objective that leading multinationals have set for their FX managers.

(To download the FiREapps ‘2014 Q4 Corporate Earnings Currency Impact Report’, see.)

How to protect your company from FX swings

This situation is serious, and it’s getting worse. FiREapps have their approach to solving the problem - see. 

The AFP have recently published an Executive Prespectives white paper entitled ‘Five ways treasurers can protect earnings from FX swings’ by  Nilly Essaides, Director of Practitioner Content Development at AFP which contains case studies and advice. First piece of advice, not surprisingly, is to understand and quantify your FX risk. Then the report recommends using a combination of five approaches:

1. hedging company intercompany transactions
2. hedge non-functional currency expenses
3. set up ‘right’ sourcing relationships
4. set up a centralized re-billing entitiy
5. hedging Available For Sale ((AFS) securities.

Combined with short case studies, this report provides important practical advice and ideas. Recommended.