Currency Risk Management for

Hexcel Materials

Authors: Kothandaraman Rengarajan (14)

Hexcel Materials
World’s leading advanced structural materials
company with global revenue exceeding $1
billion.
Four Product lines
◦ Carbon fibre
◦ Reinforcements
◦ Composite
◦ Structures
Financial stauts
◦ Revenue = $1.1 billion
◦ YoY sales growth =8.1%
◦ Operating income margin =10.5%
◦ Sales breakup with region
 US Market = 45%
 International Market = 47%
 US exports = 8%
Type of currency used in business
Currency used :USD, EUR, GBD
Duration: continous usage
What kind of exposure? Tranaction,
economic, Translation (see next slides for
more info)
What is currency risk

The risk that unfavourable change in

currecny value , results in undesired
outcome of changes in cashflow,profit or
earnings.
Currency risk Management for Hexcel
Currency 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
Types of currency exposure and measure

Transaction is the highest exposure , followed by forecasted and

Translation, economic in the later.
Gather 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
Forex derivatives and when to apply
Forward contract , Options and Swaps are commonly used . Here the
Hexcel information on how to apply those derivatives
Hexcel’s policy
Multiyear horizon – minimize variability
Layering approach
Target Hedge ratios
◦ Build over time
◦ Ranges not single point
◦ Accelerate when rates rally
◦ Decelerate when rates go against us
Challenge focus on spot improvements
Challenges in Hexcel’s policy
 Hexcel needs to adopt policy for Currency risk management where the
risks have been mitigated and controlled.
 Following are the challenges we identified
Recommendations to improve the strategy
3 Steps to detect and mitigate the risks
1.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 the
market
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 effectively
3. Report efficiently to the stakeholder and loop back with the
derivatives selection.
Implement strategic policy for CRM