Brocade is a leading multinational data networking company with growing foreign exchange (FX) exposures, as the company gradually shifts from an exclusive original equipment manufacturer (OEM) sales model to a new business model combining OEM, channel and direct business. With financial market volatility the new norm and a rapidly evolving regulatory environment, Brocade needed to rein in the company’s disparate FX activities and automate some structured business process improvements.

Problems the transformation addressed were:

• Treasury at Brocade was disconnected from other functions at the company and tended to be reactive rather than proactive. Brocade’s hedging activities were conducted in isolation limiting the ability of developing an FX strategy that supports business growth.
• FX-related business processes were inconsistent and/or sub optimal. Treasury did not have full visibility to all FX exposures due to lack of robust reporting and forecasting hindering treasury’s ability to hedge FX risk effectively.
• FX system limitations: Manual processes such as hedge storage and tracking, mark-to-market valuations, effectiveness measurement and hedge accounting entries were disparate and handled in spreadsheets. Treasury did not have the tools to evaluate different hedging strategies to support business in structuring complex transactions, or evaluate different strategies for the hedging programmes.

Brocade Treasury did more than implement an FX risk management programme. It initiated and implemented a transformation programme to revamp its FX-related business processes and ownership. Its benefits were both quantitative and qualitative with cost savings, efficiencies, and the repositioning of treasury as a strategic business partner. This was achieved with a small, results-oriented team, whose skills in selling ideas to key stakeholders demonstrated innovation, perseverance, and true leadership.

The benefits the transformation brought:

• Treasury now drives all the company-wide FX-related business initiatives and issues all the FX rates, ensuring consistency, efficiency, visibility, control and optimised management.
• Treasury is now viewed as a business partner with a seat at the table in the major strategic planning process.
• Treasury has developed and implemented programmes to support the sales organisation in growing international business, including transacting in multiple currencies and structuring large complex transactions.
• Treasury has re-engineered its hedging programmes by improving the accuracy of exposure identification and reporting, establishing new processes for income statement impact analysis, and optimising the hedge programmes and strategies. The new programmes include stress testing, scenario analysis and VAR methodologies, better exposure capture through portfolio structure over multiple time horizons, analyses on likely risks relative to risk appetite and tolerance, benchmark and alternative strategies.
• Treasury re-designed its system strategy, eliminated its spreadsheet model, reviewed FX systems and selected Reval to enable the implementation of the transformation programme.

“All these benefits have led to a significant decrease in currency exposures, reducing negative FX variance in the income statement by $1m per quarter. In addition, the efficiencies generated by the transformation programme have led to a shortened accounting close, elimination of cumbersome reconciliations, and a reduction of an estimated two FTE’s, for moderate investment,” explains Jean Furter, VP Treasurer.