Currency Volatility Places CFOs in “Tenuous Position”: Kyriba
Posted by Colin Lambert. Last updated: May 18, 2023
The latest quarterly Kyriba Currency Impact Report finds that the currency impact in Q4 2022 on corporations in North America and Europe was the third highest since the company started tracking results at over $32 billion.
To obtain the data, Kyriba analysed the earnings calls of 1,200 publicly traded North American and European companies as part of an effort to provide insight into how foreign exchange impacts organisations. It says the companies included in the data set are large multinational firms doing business in more than one currency with at least 15% of their revenue coming from overseas.
Currency rates were not particularly kind to chief financial officers (CFOs) at corporars, with the combined pool reporting $30.22 billion in FX-related headwinds and $1.99 billion in tailwinds in the fourth quarter of 2022. North American companies were hit hardest, reporting $28.94 billion in headwinds, with European companies reporting $1.28 billion in headwinds.
The average earnings per share (EPS) impact reported by publicly traded North American companies in Q4 2022 rose by $0.01 to $0.05, the report also finds with moves in the euro the most impactful for North American firms, followed by the Canadian dollar and Japanese yen. The dollar was most impactful for European companies.
“Rising interest rates and continued FX volatility are putting treasurers and CFOs in a very tenuous position,” said Andy Gage, SVP of FX solutions and advisory services at Kyriba. “Corporate treasury teams are realising they don’t have good visibility to what their company’s true exposures are, which costs billions in losses to their earnings and cash flow. It is crucial for CFOs and treasurers to improve FX risk management practices to protect cash flow and liquidity in today’s striking economic environment.
“The bottom line is that multinational corporations must have good analytics to understand where their exposures are coming from,” he continues. “When you have the right technology, you can identify problems and develop the information that CFOs require to reduce the impact of currency on their balance sheets, income statements and cash flow.”
Commenting on the report, Eric Huttman, CEO at FX trading platform MillTechFX, says he believes “it shows that US dollar volatility in particular continues to threaten the bottom lines of many European and North American firms, adding, “We believe it’s vital that corporates adapt their FX risk management measures to navigate this uncertain landscape.”
He continues, “Firms are typically not only hedging a higher amount of their exposure, but they are also reducing the length of their hedges. Rather than using long-dated FX forwards of up to two years, many corporates are now locking in rates of six months or less to give them a layer of nimbleness and flexibility should the market move against them. Likewise, those that don’t have a formal hedging strategy are likely to begin implementing one to mitigate the impact of currency movements.”