Le magazine du trésorier - n°66 - 2ème trimestre 2009 - (Page 11)

IAS and weather risks : now is the time by Jean-Louis Bertrand(1) all Street has put a lot of pressure on corporates to meet the numbers and forced treasurers to tackle sales and earnings volatility through the use of rigorous hedging programs. Most companies have dedicated resources to implement and manage IAS compliant programs to cover foreign exchange, interest rate and sometimes commodity exposures. To date, weather risks are not on the radar screen, yet many studies confirm they can have financial consequences on the business and profits that can be far in excess of what currencies or interest rates can generate. We all know that extreme weather events can cost a lot of money to companies but they might just be the tip of the iceberg. Day to day changes in temperature, precipita- W tion or sun hours too can considerably affect business activity and more importantly the bottom line. The recent consequences of the snow episode in London would be a good illustration. Over the last thirty years, corporate treasurers have learned to successfully deal with all sorts of financial risks thanks to derivative instruments. But not just derivatives.They did because they were capable of identifying and understanding the risks they were facing and their consequences on the business. In addition, International Accounting Standards provided a structured framework to report and evaluate these risks and their attached hedging programs. Finance professionals and investors know where to look in annual reports if they wonder what FX, interest rate or commo- dity price movements could do to the EBITDA. The same cannot be said about weather risks. Yet, weather may well be the next crisis companies have to deal with, especially if they are completely unprepared. 1. FINANCIAL IMPACT OF WEATHER RISKS Weather risks are defined as noncatastrophic weather events which have a financial impact on company sales or profit. They relate to any measurable and tradable variation to a definable benchmark such as changes in temperature, rainfall, snowfall or even wind speed but (1) Jean-Louis Bertrand is Professor of Finance in ESSCA. He is a member of the “Climate and Financial Innovations” working group of Paris-Europlace. He is also a weather risk management consultant at Metnext Table 1: Weather-sensitivity Ranking Table 1: Weather-sensitivity Ranking Sorted by Rating Sorted by Rating Rank Rank 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 Country Country Brazil Brazil Thailand Thailand Equador Equador Norway Norway Kuweit Kuweit Philippines Philippines Indonesia Indonesia Saudi Arabia Saudi Arabia Rating Rating 15.73 15.73 14.49 14.49 8.41 8.41 8.36 8.36 8.21 8.21 5.81 5.81 5.64 5.64 5.09 5.09 Sorted by $ exposure size ($ billions) Sorted by $ exposure size ($ billions) Country Country USA USA Japan Japan China China Germany Germany Great Britain Great Britain France France Italy Italy Spain Spain Exposure Size Exposure Size 2 561 2 561 1 192 1 192 778 778 698 698 467 467 422 422 397 397 231 231 % GDP % GDP 23% 23% 33% 33% 45% 45% 37% 37% 27% 27% 27% 27% 32% 32% 29% 29% FOCUS 11

Table des matières de la publication Le magazine du trésorier - n°66 - 2ème trimestre 2009

COUVERTURE
SOMMAIRE
EDITORIAL
FINANCIAL HIGHLIGHTS
INTERVIEW
FOCUS
FORUM OF ADVERTISERS
TREASURERS’ ASSOCIATIONS
NEWS

Le magazine du trésorier - n°66 - 2ème trimestre 2009