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Foreign Exchange Awards 2020: Corporations

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






Darren Woodward of Flywire (l) and Bovo Vitor of its banking partner, Citi, accepted a joint award for Best Automation and Centralization of FX trading from Global Finance publisher Joseph D. Giarraputo (c).


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 FINANCE BEST 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





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.






Crown Agents Bank executives picked up the win for Executives from Brembo pick up the Most Improved Corporate for FX management award from Global Finance publisher Joseph D. Giraaputo.





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.






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.



FX MANAGEMENT SECTOR WINNERS


AEROSPACE


Collins Aerospace


Collins Aerospace, West Palm Beach, Florida, was created in 2018 from the merger of UTC Aerospace Systems and Rockwell Collins. It delivers complex projects internationally and is exposed to changes in FX rates. Collins Aerospace uses derivatives, including swaps, forward contracts, and options to manage certain FX, interest rate and commodity-price exposures. The settlement of these derivative instruments resulted in a net cash inflow of approximately $158 million during the nine months ended September 30, 2019, compared to a net cash inflow of $71 million in the same period a year earlier.



FX MANAGEMENT SECTOR WINNERS


AGRICULTURE


Archer Daniels Midland


Chicago, Illinois-based Archer Daniels Midland (ADM) is one of the world’s largest agricultural processors and food ingredient providers. It has about 450 crop-procurement locations and more than 330 food- and feed-ingredient manufacturing facilities, and it serves customers in nearly 200 countries. ADM uses option contracts and exchange-traded futures to manage its net position of agricultural-commodity inventories. It uses forward cash purchases and sales to reduce price risk caused by market fluctuations in commodities and foreign currencies. The company also uses derivatives as components of merchandising strategies designed to enhance margins.



FX MANAGEMENT SECTOR WINNERS


CHEMICALS/PHARMACEUTICALS/PLASTICS


Merck


German pharmaceutical company Merck hedges approximately 40% of its foreign currency exposure at present and could increase the hedges to as high as 90% if necessary. As currencies have become more volatile, Merck has shortened the maturity of its currency hedges and expanded its hedging program to cover the currencies of all 60 countries in which it does business. While hedges may limit some of the exposure to exchange rate fluctuations, Merck says attempts to mitigate these risks may be costly and are not always successful.



FX MANAGEMENT SECTOR WINNERS


CONSUMER GOODS


Unilever


Anglo-Dutch consumer goods company Unilever has 300 factories in 69 countries. The company converts local currency revenue into euros at a fixed reporting date. This gives it an incentive to hedge its currency exposure to dampen volatility in revenues. Furthermore, Unilever’s operating companies borrow in local currencies whenever possible. Unilever’s approach to risk management in general is to provide reasonable, but not absolute, assurance that its assets are safeguarded and that risks are constantly assessed and mitigated.



FX MANAGEMENT SECTOR WINNERS


ENERGY


Royal Dutch Shell


Using technology developed by Bloomberg, Anglo-Dutch oil-and-gas company Royal Dutch Shell automated and centralized its FX management. The portal connects Shell’s central treasury with more than 700 operating units in 25 countries. This enables the company to aggregate and net its currency exposure by as much as 70%, reducing the need for hedging. Shell is free to choose the route to market for each exposure, using algorithms, streaming or requests for quotes, wherever it identifies value. The company handles nearly $1 trillion in FX transactions annually.



FX MANAGEMENT SECTOR WINNERS


HEALTHCARE


Medtronic


Medtronic is the world’s largest medical device company. It has an operational headquarters in Minneapolis, Minnesota; but it is based in Dublin, Ireland for tax purposes. Altogether, the company operates from more than 350 locations in 150 countries. Medtronic uses natural hedges and FX derivatives—mainly forward contracts—to manage the impact of currency fluctuations on earnings and cash flow. The gross notional amount of all FX derivative instruments outstanding on July 26, 2019 was $10.8 billion.



FX MANAGEMENT SECTOR WINNERS


MANUFACTURING


Ford Motor


As a resource-intensive manufacturing company with global operations, Ford Motor is exposed to foreign exchange, commodity and interest-rate changes that cannot always be predicted, hedged, or offset with price increases. Ford monitors and manages these exposures as part of its overall risk-management program, which recognizes the unpredictability of markets. In some markets, exchange rates are heavily influenced or controlled by governments. Ford uses derivative instruments, when available, that economically hedge certain exposures so there are no significant, unpleasant surprises on financial results.



FX MANAGEMENT SECTOR WINNERS


MINING


Anglo American


Anglo American, the world’s largest producer of platinum, is based in South Africa and the UK. It also owns 85% of De Beers, the world’s leading diamond company, and produces large amounts of copper, nickel, iron ore and coal. A stronger dollar has a positive impact on Anglo American’s earnings. Other currencies impacting its costs include the South African rand, the Brazilian real and the Australian dollar. The company generally does not hedge its currency exposures, because of their correlation over the longer term with commodity prices, and because of the diversified nature of its business. It decides on a case-by-case basis whether or not to hedge its nondollar capital spending, taking into account the amount of the exposure, the liquidity of the foreign exchange markets, and the cost of executing a hedging strategy.



FX MANAGEMENT SECTOR WINNERS


RETAIL


Tesco


UK-based multinational grocer and general merchandise retailer Tesco uses the British pound as its functional currency. Transactional exposures to other currencies that could have a significant impact on the group’s income statement are hedged using FX forward contracts or currency options, which are designated as cash flow hedges. Tesco also hedges a portion of its net investment exposure in its international subsidiaries via currency derivatives and borrowings in matching currencies. Loans to non-UK subsidiaries are also hedged for currency exposure.






Elizabeth Tse and Mike Paylor from Upwork.



FX MANAGEMENT SECTOR WINNERS


TECHNOLOGY


Upwork (Banking Partner: Citi)


Santa Clara, California-based Upwork owns and operates an online global marketplace that helps clients of all sizes to hire, collaborate with and pay freelancers across the world. These clients pay Upwork, which in turn pays the freelancers as the work is completed or milestones are reached. Partnering with Citi, Upwork installed an automated system whereby it could accept payment in foreign currency without introducing FX risk. Once a day, Citi sends Upwork a set of FX rates that are guaranteed for 24 hours. These rates are then used to lock in amounts paid by Upwork’s customers in their home currency for that day. The solution is scalable to new markets as Upwork grows.



FX MANAGEMENT SECTOR WINNERS


TRANSPORTATION


UPS


Atlanta, Georgia-based United Parcel Service (UPS), the world’s largest package delivery company, serves 220 countries. Its most significant currency exposures relate to the euro, British pound, Canadian dollar, Chinese renminbi and Hong Kong dollar. UPS uses forwards and a combination of purchased and written options to hedge forecasted cash flow currency exposures. These derivative instruments generally cover forecasted exposures for periods of 12 to 48 months. UPS also uses forward contracts to hedge portions of its anticipated cash settlements of intercompany transactions subject to foreign currency remeasurement.

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