FX an “undermanaged but vital” for Irish businesses, says expert

Irish companies are “exposed” to foreign currencies and need FX policies to avoid being caught out – but only 15% of companies have one.

John Finn, Managing Director at Treasury Solutions, offered insights into currency trends and the effects of current events on the economy at our recent conference.

He emphasised that, while forecasting is near impossible in the current environment, having robust hedging and currency policies in place to structure and manage Foreign Exchange (FX) in companies has never been more vital.

“I’ve been saying this for years – if you have any sort of material level of currency to buy or sell you need a currency policy – a board approved document. It doesn’t have to be long but it should put some structure on how you manage your currency.”

This is an undermanaged area of finance, John says, and many businesses are not keeping up. Most Irish companies are exposed to foreign currencies, through exports and their supply chain. Companies that import or export are exposed to on a number of fronts, but even companies that are not buying or selling overseas are exposed to the dollar through the pricing of fuel, energy in general and anything with a has a petrochemical important such as plastics.

In addition to the importance of the EUR/GBP rate, companies need to consider the US dollar. All of these businesses need hedging and currency policies to avoid being caught by swings – but only 15% of companies have one.

What a company FX Policy/Strategy needs – it should:

• primarily be a Board-driven and approved document;
• set out the “big picture” regarding currency (or wider Treasury) management and the company’s attitude to risk management; and
• have a strategy that links the policy to the operational side of the business – how do currency movements impact on sales/procurement/profits?

The FX strategy should identify and quantify exposures, including the size of the financial risk, and be reviewed regularly.

Having an FX policy and strategy in place is not a new recommendation, says John, but current political turbulence has made it more vital than ever. “It’s about trying to make sure you secure your margins and that you’re not hammered by surprise rules against you. It’s about making sure you don’t lose money currently, rather than trying to make money.”

John is Managing Director of Treasury Solutions Ltd, which provides debt advisory and corporate treasury risk management services to the SME and corporate market. The company has a broad base of domestic and multinational clients covering both public and private sectors and has been involved in structuring debt and risk management deals ranging from €1m to €300m with Irish and international banks.

Against the background of a likely economic slowdown in Europe, and a turbulent political environment, he also predicted increasing inflation and interest rates and addressed other topics including lending trends for SMEs and ESG.

You can watch the whole conference, including John’s presentation, below. It starts at the 2:55 mark and runs for 25 minutes.