currency risk management for hexcel materials

8/7/2019 Currency Risk Management for Hexcel Materials

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Currency Risk Management forCurrency Risk Management for

Hexcel MaterialsHexcel Materials

Authors: Kothandaraman Rengarajan (14)


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Hexcel MaterialsHexcel Materials

y

Worlds leading advanced structural materialscompany with global revenue exceeding $1billion.

y Four Product lines Carbon fibre

Reinforcements

Composite

Structures

y Financial stauts Revenue = $1.1 billion

YoY sales growth =8.1% Operating income margin =10.5%

Sales breakup with regionx US Market = 45%

x International Market = 47%

x US exports = 8%


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Type of currency used in businessType of currency used in business

y Currency used :USD, EUR, GBDy Duration: continous usage

y What kind of exposure?Tranaction,

economic,Translation (see next slides formore info)

y What is currency risk

The risk that unfavourable change incurrecny value , results in undesired

outcome of changes in cashflow,profit or

earnings.


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Currency risk Management for HexcelCurrency risk Management for Hexcel


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Currency risk for HexcelCurrency risk for Hexcel

Following are the risks for Hexcel

Foreign exchange risk due to markets served. Commercial aerospace USD dominated market

Manufactured in Europe Incure GBP/EUR cost

Sell in USD to airbus and other suppliers

Risk is impact of GBP/EUR vs USD rates

Transaction balance sheet exposure

Net investmenet exposure


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Types of currency exposure and measureTypes of currency exposure and measure

Transaction is the highest exposure , followed by forecasted and

Translation, economic in the later.


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Gather the exposure data from HexcelGather the exposure data from Hexcel

Income statement - Legal entities forecast by invoice currency

Annual forecasts Assume same exposure on all Quarters

Tracking actual performance against forecasting due to system

limitations

Trakcing hedge activity

FAS133 compliance


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ForexForex derivatives and when to applyderivatives and when to apply

Forward contract , Options and Swaps are commonly used . Here theHexcel information on how to apply those derivatives


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Hexcels policyHexcels policy

y Multi year horizon minimize variabilityy Layering approach

y Target Hedge ratios

Build over time

Ranges not single point

Accelerate when rates rally

Decelerate when rates go against us

y Challenge focus on spot improvements


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Challenges in Hexcels policyChallenges in Hexcels policy

y Hexcel needs to adopt policy for Currency risk management where the

risks have been mitigated and controlled.

y Following are the challenges we identified


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Recommendations to improve the strategyRecommendations to improve the strategy

3 Steps to detect and mitigate the risks1. Risk assessment

1. Assesse the risks properly

2. Focus the critical exposures

3. Use Scenario analysis or other methods

2. Strategic development

1. System development and support to get correct data from themarket

2. Measure the exposure using appropriate tools

3. Manage the exposure carefully

3. Implementation

1. Recommend policy and procedures for execution (next slide)

2.Track effectively3. Report efficiently to the stakeholder and loop back with the

derivatives selection.


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Implement strategic policy for CRMImplement strategic policy for CRM

currency risk management for hexcel materials

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