Foreign Exchange Awards 2020: Corporations

Global Finance honors companies that expertly manage their FX exposures to compete in a tough global economy.

At a time when the global economy is slowing and trade wars are raging, currency volatility is a critical way companies are losing ground to their competitors. Foreign exchange losses cost companies in North America and Mexico more than $44 billion in the first half of 2019, according to Kyriba’s FiREapps.

“CFOs who dismissed this problem as a temporary wave of market drama need to reconsider their approach,” says Wolfgang Koester, chief evangelist and global head of Financial Institutions for Kyriba, in a company press release. “They need to adopt modern tools to measure, monitor and manage their currency exposures accurately and in real time, or risk facing more quarters of substantial losses.”

The role of the corporate finance department has never been more vital, as multinationals try to navigate these challenging times, says Koester. The pressure is being felt by CFOs, who are called upon to accelerate growth despite these challenges, he says. The ability to know where your cash is has never been more critical, he adds.

San Diego, California-based Kyriba has developed a cloud platform to help CFOs and their teams to activate and protect their global cash and liquidity to achieve better financial outcomes.

The euro has repeatedly topped the list as the currency most mentioned in corporate earnings calls as having a negative impact on corporate results. Other volatile currencies in the past year included the dollar, the renminbi, the Brazilian real, the Turkish lira and the South Korean won.

Fluctuations in foreign exchange rates affect a multinational company’s financial position, as well as its competitive position in the global marketplace. One of the main goals of FX hedging by corporate treasuries is to reduce earnings volatility.

With these Corporate FX awards, Global Finance honors those companies (globally and in seven regions) that have successfully protected their profit margins, cash flows, balance sheets and global competitiveness by expertly managing their currency exposures. The main objective is to minimize losses, not to seek profit from currency trading. This year, corporate honorees were chosen in 11 industry sectors and, for the first time, in 10 new global categories.

Methodology

Global Finance’s criteria for the corporate FX awards are similar to those for its FX service providers: a mix of objective and subjective. We consider whether the company has clearly defined risk-management policies, how it handles currency-related crises, and whether it accurately measures its FX exposure and controls the cost of hedging.

Our criteria also include subjective factors such as customer service and technology innovations and use of input from industry analysts, surveys, corporate executives, consultants and technology experts. Entries are not required in order to win, but decisions are informed by provider submissions.

GLOBAL FINANCEBEST FINANCIAL INSTITUTIONS FOR FOREIGN EXCHANGE 2020

Global Winners
Best Company in the World for Foreign Exchange Management	HP Inc.
Best Company for Use of Currency Hedging	Samsung Heavy Industries
Best Company for Use of FX Options	Nike
Best Company for Use of FX Forwards	Airbus
Best System for Real-Time Measurement of FX	Olam Agro India Tech Partner: IBS FINtech India
Best Solution for FX Cash-Flow Hedging	World Vision International Banking Partner: Standard Chartered
Best System for Assessing Risk and Hedging Strategy	Taiwan Semiconductor Manufacturing
Most Improved Company for FX Management	Brembo
Best FX Netting Solution	JSW Group Tech Partner: IBS FINtech India
Best Collaboration with Banks and Suppliers	Primeiro Pay Banking Partner: Citi
Best Automation and Centralization of FX Trading	Flywire Banking Partner: Citi
Best Contingency Solution to Mitigate Long-Term FX Risk	Microsoft
Best FX Risk Management in a Cross-Border Merger or Acquisition	X-Elio
Best System for Measuring Quality of FX Execution	HP Inc.

Regional Winners
Africa	Naspers
Asia-Pacific	LG
Central & Eastern Europe	MOL Group
Latin America	Amaggi
Middle East	ACWA Power
North America	Procter & Gamble
Western Europe	Koninklijke Philips

Foreign Exchange Management Sector Winners
Aerospace	Collins Aerospace
Agriculture	Archer Daniels Midland
Chemicals/Pharmaceuticals/Plastics	Merck
Consumer Goods	Unilever
Energy	Royal Dutch Shell
Healthcare	Medtronic
Manufacturing	Ford Motor
Mining	Anglo American
Retail	Tesco
Technology	Upwork Banking Partner: Citi
Transportation	UPS

GLOBAL WINNERS

BEST CORPORATION FOR FX MANAGEMENT

HP Inc.

Palo Alto, California-based HP Inc. has followed a diligent, data-driven approach to managing its foreign exchange (FX) exposure. The maker of computers and printers has operations in 170 countries. HP has achieved multimillion-dollar savings in FX cash flow and balance-sheet hedging programs using its analytical capabilities and optimizing its trading processes—and the savings are continuing.

HP’s treasury department developed an FX trading framework guided by data. The algorithm’s success is another step toward treasury automation, albeit under defined parameters and supervision.

HP has successfully rotated banks for currency trades using the analytics it developed. It has thus avoided counterparty concentration among banks by diversifying the portfolio, with no negative effect on pricing. The company also has identified key banks for specific currencies and products, while offering other counterparties the opportunity to compete for business. HP hosted lengthy discussions with banking partners in order to develop its best-in-class corporate algorithm program. It provides consistent feedback to its banking partners on strengths, weaknesses, opportunities and risks, based on quantitative and qualitative metrics.

BEST CORPORATION FOR USE OF CURRENCY HEDGING

Samsung Heavy Industries

South Korea–based Samsung Heavy Industries, one of the largest shipbuilders in the world, uses forward contracts and currency swaps to hedge its FX risk from cash flows in foreign currencies. The company receives most of its payments for shipbuilding contracts in dollars. Since it fully hedges its shipbuilding payments, the fluctuation in value of major foreign currencies has almost no impact on the company’s profit. Group companies are required to manage their FX risk against their functional currencies. The company’s board provides written principles for overall risk management, and written policies covering specific areas, including FX risk.

BEST CORPORATION FOR USE OF FX OPTIONS

Nike

The world’s largest supplier of athletic shoes and apparel and a major manufacturer of sports equipment, Beaverton, Oregon-based Nike was the first multinational corporation to use continuous linked settlement to eliminate settlement risk in FX. Nike uses a variety of financial instruments, including currency options, to manage its exposure to fluctuations in currencies and interest rates. The value of FX options does not change on a one-to-one basis with underlying currency rates. Therefore, Nike adjusts the potential loss in an option’s value for the estimated sensitivity to changes in the underlying currency rate. This “variance-to-variance” technique is based on changes in the preceding one-year period. The company may enter into hedge contracts starting up to 24 months in advance of a forecasted transaction.

BEST CORPORATION FOR USE OF FX FORWARDS

Airbus

More than half of Airbus’ revenues are denominated in dollars, with about 60% of this exposure naturally hedged by the company’s dollar-denominated costs. The remaining costs are mainly in euros, and to a lesser extent in British pounds. Airbus uses hedging solely to manage and minimize the impact on earnings from the volatility of the dollar. The company manages a long-term hedge portfolio with a maturity of several years, covering its net exposure to dollar sales. The company’s forward sales as of June 2019 were $14.7 billion. It typically implements FX forward contracts to lock in the rate at which future receivables are converted into euros.

BEST SYSTEM FOR REAL-TIME MEASUREMENT OF FX EXPOSURE

Olam Agro India (Tech Partner: IBSFINtech India)

Olam Agro India, a subsidiary of Singapore-based Olam International, manages a diversified commodity supply chain across the subcontinent and has significant FX and commodity price exposures. Working with IBSFINtech India, Olam India implemented a treasury risk-management solution to digitize its processes and achieve real-time measurement of FX exposure.

The system enabled Olam India to achieve more transparency and control, offering a holistic view to top management. The company’s operating volumes doubled as a result of the benefits of automation and centralized data management. The software keeps track of currency hedging risks on predefined parameters and calculates the profit or loss at each stage of the process.

BEST SOLUTION FOR FX CASH-FLOW HEDGING

World Vision International (Banking Partner: Standard Chartered Bank)

UK-based World Vision International (WVI), a global Christian humanitarian and relief organization with operations in nearly 100 countries, relies on cash flow projections and hedging to manage its FX exposure. Standard Chartered has collaborated extensively with WVI’s global treasury to provide local market knowledge, currency forecasts and macroeconomic outlooks. The relief organization actively monitors a portfolio of stop-losses and forwards to realize FX savings relative to budgets. It has demonstrated the value of active management in making it easier for global development organizations to manage the currency risk inherent in grants and other forms of restricted funding.

BEST SYSTEM FOR ASSESSING RISK AND HEDGING STRATEGY

Taiwan Semiconductor Manufacturing

The functional currency of Taiwan Semiconductor Manufacturing and the presentation currency of its consolidated financial statements are both Taiwan new dollars. More than 90% of the company’s sales are denominated in US dollars. Taiwan Semiconductor uses foreign currency derivatives to protect against currency exchange rate risks. It also uses US dollar-denominated debt to partially offset currency risks on receivables. Derivatives are strictly used to limit the company’s exposure after internal netting of income against expense, and assets against liabilities incurred from business activities or highly probable forecasted transactions. The dollar amount of total hedging contracts outstanding is not allowed to exceed the net position or exposure for the next six months.

COMPANY WITH THE MOST IMPROVED FX MANAGEMENT

Brembo

Curno, Italy-based Brembo, which makes brake systems for high-performance automobiles and motorcycles, switched from a fragmented local management to centralized and automated currency coverage. It also increased its panel of bank counterparties, thereby lowering costs thanks to increased competition. Using a constantly updated forecast, Brembo monitors flows on a continuous basis and maintains 75% to 80% coverage of its FX exposures. By centralizing currency activities, it improved the visibility of trades at the group level and standardized flows and procedures throughout the group.

BEST FX NETTING SOLUTION

JSW Group (Tech Partner: IBSFintech India)

JSW Group, India’s largest steel manufacturer, is a conglomerate with operations in cement, infrastructure and ports. The company, which exports to more than 100 countries, implemented an FX risk-management solution from technology partner IBS Fintech India. The system enables a comprehensive view of global cash balances for central and regional treasury centers.

The key objective was to automate and streamline the treasury operations managing the exposure at a global level across multiple currencies. An integrated multicompany and multilocation treasury module handles both hedge and trade books. Exposures can be evaluated based on multiple businesses to arrive at the net open position to be hedged.

BEST COLLABORATION WITH BANKS AND SUPPLIERS

PrimeiroPay (Banking Partner: Citi)

PrimeiroPay provides payment and financial solutions to multinational companies selling into Latin America and receiving proceeds at their international head offices. It is crucial for these companies to accept payments with local currency and payment methods. In order to eliminate currency risk, PrimeiroPay partnered with Citi to enable automated FX trading on daily guaranteed rates. PrimeiroPay sends one daily trade for each client at the guaranteed rate and provides the entire documentation set required by the bank’s back office.

BEST AUTOMATION AND CENTRALIZATION OF FX TRADING

Flywire (Banking Partner: Citi)

Boston-based fintech Flywire provides cross-border payments and is growing rapidly in terms of both volume and reach. CitiFX Pulse and Citi Velocity platforms offer Flywire the high degree of automation it needs to keep up with this growth. Flywire’s sizeable transactions need to be checked for fraud and settled promptly. Flywire used the Citi platforms to expand its collection of local currencies from 12 markets to more than 20 this year alone. Many of these markets use currencies that are not freely convertible. Citi helped Flywire keep as much volume through its London hub as possible while problem solving in markets where Flywire has no choice but to trade locally.

BEST CONTINGENCY SOLUTION TO MITIGATE LONG-TERM FX RISK

Microsoft

Due to the breadth of its international activities, Microsoft uses billions of dollars of derivative instruments to manage the economic impact of its FX exposures. Option and forward contracts are used to hedge a portion of forecasted international revenue for up to three years in the future and are designated as cash flow hedging instruments. Foreign currency risks related to securities are hedged using forward contracts that are designated as fair value hedging instruments. Certain options and forwards not designated as hedging instruments are also used to manage the variability in FX rates on certain balance-sheet amounts. As of June 30, 2018, the notional amounts of all these FX contracts totaled $20.5 billion.

BEST FX RISK MANAGEMENT IN A CROSS-BORDER MERGER OR ACQUISITION

X-Elio

When X-Elio, a Spanish-based company that builds and operates solar-power plants worldwide, wanted to complete Japan’s largest sale of solar plants last year, it hired Nomura to structure a deal-contingent FX hedge to mitigate the foreign currency risk between the signing and closing of the transaction. This allowed X-Elio to lock in the value of its proceeds. A deal-contingent FX hedge requires no upfront payment and offers the ability to lock in a forward rate. A small spread is added only if the deal is successful and the hedge is used. The Japanese solar plants were successfully sold to institutional investors for about $700 million.

BEST SYSTEM FOR MEASURING QUALITY OF FX EXECUTION

HP Inc.

The treasury team at HP Inc. has developed a data-driven, currency-trading system using deep insights gained by leveraging various algorithmic (algo) strategies. This has enabled the company to save on bank fees and spreads and to actively select execution timing and optimal strategies, leading to higher successful orders and minimal market impact. HP is a beneficiary of bespoke transaction-cost analysis reports that are automatically populated by counterparties upon completing orders. It uses this information to analyze the performance of algo strategies for various currency pairs, notional size and time of day. HP treasury’s algorithm program executed trades over several billion dollars and was adopted successfully by all of the company’s FX traders.

REGIONAL WINNERS

BEST CORPORATIONS FOR FX MANAGEMENT

NORTH AMERICA

Procter & Gamble

Cincinnati, Ohio-based Procter & Gamble (P&G) sells consumer goods in more than 180 countries and receives about 56% of its revenue from outside the US. Changes in foreign currency values and commodity prices can wreak havoc with its cash flow forecasting. The company leverages its diversified portfolio of exposures as a natural hedge through local sourcing, but it also relies on currency derivatives. P&G had notional foreign currency contracts of $6.2 billion as of September 30, 2019, and an additional $3.3 billion in foreign currency interest rate contracts.

BEST CORPORATIONS FOR FX MANAGEMENT

LATIN AMERICA

Amaggi

Brazil-based soybean producer and exporter Amaggi, which is privately owned, developed an automated treasury system in-house to cope with volatility in exchange rates. The bespoke system helps the company find internal offsets for foreign currency exposures across its businesses. Amaggi had about $10 billion in various derivatives contracts, but it has greatly reduced its hedging requirements as a result of the new system, which required various divisions to change their reporting methods.

BEST CORPORATIONS FOR FX MANAGEMENT

WESTERN EUROPE

Koninklijke Philips

With operations in more than 100 countries, Dutch technology firm Koninklijke Philips uses a set of algorithms to manage its foreign currency exposures. The company’s income from operations is particularly sensitive to movements in currencies of countries where it has little to no manufacturing or local sourcing activities, such as Japan, Canada, Australia and the UK, as well as a range of emerging markets. Philips hedges the anticipated net exposure of foreign currencies for the group in layers of 20% up to a maximum of 80%, using forwards and options. Significant committed foreign currency exposures are fully hedged.

BEST CORPORATIONS FOR FX MANAGEMENT

CENTRAL & EASTERN EUROPE

MOL Group

MOL Group, based in Budapest, Hungary, is a leading integrated oil and gas company in Central and Eastern Europe. It tries to match the currency mix of its debt portfolio with the net long-term currency position of its revenue generation, to take advantage of natural hedges. Most of the company’s debt is denominated in euros and dollars. MOL also uses FX derivatives to hedge the currency exposure if necessary, since the company operates in 30 countries. The company’s practice allows for flexibility when the currency market environment is either favorable or challenging.

BEST CORPORATIONS FOR FX MANAGEMENT

ASIA-PACIFIC

LG

South Korean industrial conglomerate LG has diverse business interests, including electronics, appliances, mobile communications, displays, chemicals and technology holdings. The group is mainly exposed to FX risk on the euro and the dollar. It uses FX risk-management techniques to provide the foundation of a stable business operation. LG attempts to balance foreign currency denominated assets and liabilities during the normal course of business. It continuously considers efficient FX risk hedges against its remaining exposures and scrutinizes changes in its exposures and the results of its hedging activities on a monthly basis.

BEST CORPORATIONS FOR FX MANAGEMENT

MIDDLE EAST

ACWA Power

Saudi Arabia–based ACWA Power develops power generation and water desalination plants in 12 countries. It has also bid for renewable-energy projects in five more countries. The finance team, split between Riyadh and Dubai, manages the company’s entire derivatives portfolio, including hedge-effectiveness testing using a platform supplied by Fincad. Some of ACWA Power’s subsidiary companies are based in regions experiencing considerable currency volatility. The company uses FX forwards and has plans to begin using more-complex derivatives.

BEST CORPORATIONS FOR FX MANAGEMENT

AFRICA

Naspers

South Africa–based conglomerate Naspers is a multinational internet group with interests in e-commerce, online retail, food delivery, payments, media and fintech. The group uses derivatives, including forwards and currency swaps, to manage its exposure to FX rate fluctuations. It documents the relationship between hedging instruments and hedged items, as well as its risk-management objectives and strategy for entering into hedging transactions. Naspers also documents its assessment as to whether the derivatives have been effective.