Transcript Slide 1

Copyright 2010 FiREapps.
AGENDA
Introduction
– Wolfgang Koester, CEO, FIREapps
The Euro Crisis: how did we get here?
– Professor John Mathis, Thunderbird School of Global
Management
FX Impact on Corporations
– Wolfgang Koester
Your Corporation: how this impacts You
– Corey Edens, Chief Product Officer, FiREapps
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CONGRATULATIONS!
Your company survived the biggest economic
downturn since the great depression.
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YOU MADE CUTS
… and are doing more with less
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THEN ALONG COMES
THE EURO CRISIS
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NOW WHAT?
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THE EURO CRISIS
How did we get here?
Dr. F. John Mathis, Thunderbird School of Global Management
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JANUARY 1, 1999: BIRTH OF THE EURO AND EMU
Fundamental structural issues with the euro set the stage for today’s crisis
Conflicts
Monetary vs. Fiscal Policy
European Central Bank (ECB) has responsibility for monetary policy;
individual central banks retained fiscal policy responsibilities
Problem
No authority to:
• Tax
• Spend
• Enforce actions/impose penalties for non-compliance
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ACTIONS SPEAK LOUDER THAN WORDS
Original Euro Zone Member Breaches
Country
Past breach periods
for deficit
Austria
Past breach periods
for debt
2003-09
Germany
2003-06
2003-09
France
2003-04
2003-09
Italy
2003-09
2003-09
Luxembourg
Netherlands
2004-05
Belgium
2003-09
Spain
2008
Portugal
2002; 2005-06
Finland
2005-2007
Ireland
2008
Greece
2003-08
2005-09
2003-09
Source: 2009 CIA World Fact Book
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WHERE DID WE COME FROM?
A Bumpy ride… euro’s limitations are stressed, but the euro survived.
April 2009 Greek crisis pushes the euro to a breaking point.
10/31/07 - Euro climbs
above $1.45, for first
time. U.S. Fed announces
a 25 basis point cut in its
key interest rate to 4.5%.
7/15/08 - Euro sets
record high of
$1.6038 after U.S.
government support
for Fannie Mae &
Freddie Mac fails to
quell concerns about
wider U.S. financial
stability.
Oct 2009- US
headlines
discuss
‘demise of
the US Dollar’
as a world
currency
Dec 2008- ECB
Expected to lower
interest rates by 50
bhp
Oct 2008- ‘Flight to safety:’ US
dollar rallies as financial crisis
goes global
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April 2009Greek debt
crisis turns
speculation
to Euro
decline and
break-up
THE TURNING POINT:
SEPTEMBER, 2008
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2008 EUROPE STARTED FACING THE BIGGEST
GDP DECLINE SINCE THE GREAT DEPRESSION
Original Euro Zone Member Breaches
Source: Association for Finance Professionals, May 2009
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EURO GOVERNMENTS STEP IN TO STABILIZE
THE FINANCIAL SECTOR, INCREASING DEBT
Original Euro Zone Member Breaches
“Less than half of the total
amounts committed [to
stimulus] had been
effectively used”
– ECB, April 2010
Source: European Central Bank, OCP N109, April 2010
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GREEK’S DEFICIT AND DEBT FORCE THE
EUROZONE TO TAKE ACTION
Original Euro Zone Member Breaches
Source: Association for Finance Professionals, March-April 2009
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PIIGS* IN DEBT:
A TANGLED WEB THAT TRAPS ALL OF EUROPE
Original Euro Zone Member Breaches
* Portugal, Italy, Ireland, Greece and Spain
Source: New York Times, May 1, 2010
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RESULTING IN DEBT AND DEFICITS ACROSS
THE EURO ZONE
Original Euro Zone Member Breaches
Euro deficit limit: 3% ● Euro debt to GDP limit: 60%
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EVEN THE ECB SEES IT
GETTING WORSE
“The euro zone deficit will climb to 7%
in 2010”
“…by then, all euro countries will
exceed the 3% deficit limit”
Source: European Central Bank, OCP N109, April 2010
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A VICIOUS CYCLE OF GROWING DEBT AND DECLINING
GDP, EXACERBATED BY GROWING LIABILITIES
Original Euro Zone Member Breaches
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KEY THEMES
ECB has no authority
EU Members have different agendas
European? Yes. Union? No.
No common Purpose/Identity/Language/Culture
Increasing debt becomes a vicious cycle
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OUR TAKE
ECB lacks authority to solve the problem
Too late to address structure when the house is on fire
• Creating a federalized fiscal union in Sept 08 would have addressed this
issue
strongest countries can address the
structural issues by pulling out of the euro
Only the
• Lacking the ability to eject PIGS
Trigger Event for
Structural Euro Change
• Greek non-compliance in 12-18 months
• Spain bailout deemed too expensive
• …
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THE EUROPEAN PROBLEM IS
BECOMING GLOBAL
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GLOBAL EXAMPLES…
Original Euro Zone Member Breaches
… May 2010 Thai Bhat falls to 8-month low
Debate over Chinese Yuan peg continues…
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INCREASED VOLATILITY & SUDDEN
CURRENCY SHIFTS ARE THE NEW NORM
Original Euro Zone Member Breaches
USD Volatility DEC 2007 – May 2010
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FX IMPACT ON CORPORATIONS
Where are we now?
Wolfgang Koester, CEO, FiREapps
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FX IMPACTS CORPORATE FINANCIAL
PERFORMANCE THROUGHTOUT
THE INCOME STATEMENT
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MULTINATIONALS ARE INCREASINGLY SUSTAINING
EPS IMPACTS DUE TO FX VOLATILITY
Companies reporting unexpected FX gains or losses
in Q1 are signaling
+ Lack of risk management expertise
+ Less predictable margins
+ Less predictable net income
= Lack of EPS predictability, resulting in decreased
shareholder value
Q2 earnings releases report significant
FX impacts
• Corporate stocks already starting to devalue
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THE MARKET IS ALREADY REACTING
Stock down 14% on Q2 guidance due to declining
euro despite strong Q1 revenue and profit growth
Other suspects
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MOST HAVE REPORTED MATERIAL FX IMPACTS
Original Euro Zone Member Breaches
59% of companies
surveyed experienced a
material FX gain/loss
in 2009* (45% increase)
*2010 FiREapps/SunGard FX Exposure Management Practices Survey
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THEY DON’T KNOW WHAT THEY DON’T KNOW
Original Euro Zone Member Breaches
*2010 FiREapps/SunGard FX Exposure Management Practices Survey
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YOUR CORPORATION
How This Impacts You
Corey Edens, Chief Product Officer, FiREapps
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UPS & DOWNS ALWAYS OCCUR
Original Euro Zone Member Breaches
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THIS IS DIFFERENT
Original Euro Zone Member Breaches
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THERE IS NO LONGER A “FREE PASS” FOR
UNANTICIPATED FX IMPACTS
Original Euro Zone Member Breaches
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FX WILL HAVE A SIGNIFICANTLY GREATER IMPACT ON
CORPORATE FINANCIAL PERFORMANCE THAN IT HAS IN THE PAST
…meaning that corporate risk managers have to
work smarter and harder
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MAINTAINING CURRENT COURSE
…is ill-advised
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SOLUTION: UNDERSTAND YOUR TRUE
ECONOMIC AND ACCOUNTING EXPOSURE
Income Statement
Revenue
COGS
Operating Expense
Operating Income
Other Income/Expenses
FX Gain/Loss
Net Income
EPS
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MOTHERHOOD & APPLE PIE:
THE STANDARD EXPOSURE MANAGEMENT PROCESS
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KEYS TO SUCCESS:
WORKING SMARTER REQUIRES AN ENGINE (NOT A PADDLE)
Look at past results
– Double your worst Quarterly FX loss in the last two years
Automation
enables companies to reduce
–Process
Is that result
acceptable?
the cost
and risk
of foreign exchange
– If so, there’s
no need
for concern
Otherwise
– Dig in to understand above-the-line and below-the-line exposures
Take definitive action to protect yourself
– Structural
– Operational
– Financially (e.g. derivatives)
Data
Process
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Analytics
KEY TAKEAWAYS
We’re entering a new era of FX
unpredictability
The old rules no longer apply
The old tools (systems and processes) aren’t good
enough
To survive, companies must
understand their
FX exposure & manage their risk
• Complete data, timely analysis & transparent processes
Take definitive
action
• Structural, operational and financial
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