Companies in North America and Europe reported a negative currency impact of $3.9bn in the second quarter of this year.
According to a report on the impact of volatility on American and European multinationals, by software provider FiREapps, North American companies were more likely to be negatively affected by volatility than their European counterparts. In total, 132 North American companies reported negative currency impacts in the second quarter, compared with 124 European corporates.
But, the aggregate impact of currency volatility quantified by companies in Europe was larger, standing at €2.1bn ($2.7bn) compared with $1.2bn in North America.
The average per-company negative impact – both as a number and as a percentage of revenue – was significantly larger for European corporates ($135m or 0.39% of average annual revenue) than for North American corporates ($41.8m or 0.23% of average annual revenue).
Both North American and European corporates reported continued challenges from emerging-market currencies. The volatility of both the Brazilian real and the Russian ruble caused issues for both North American and European companies.
Medical equipment and supplies, business services, electronic instruments and controls, miscellaneous capital goods and chemical manufacturing were the industries where companies reported the most currency impacts.
“Multinational corporates cannot control currency volatility,” FiREapps noted. “It is simply a part of global business. However, corporates can control the extent to which they are prepared for currency volatility. Preparedness is critical not only to avoid bottom-line impacts, but also to avoid longer-term, often hidden and more dangerous impacts as well.
“When a company’s revenue is regularly eroded by currency surprises, it has less cash available for productive activity. That loss has ripple effects, including credit rating downgrades that raise the firm’s cost of capital and debt covenant breaches that limit its access to liquidity. Both reduce available cash and limit the firm’s ability to deliver maximum profit to shareholders.”
Sally Percy is editor of The Treasurer