DLL (De Lage Landen) is a global asset finance company headquartered in Eindhoven, the Netherlands, and a wholly owned subsidiary of Rabobank. Operating in more than 25 countries, it delivers leasing and asset-based financing solutions across a variety of industry sectors, including agriculture, construction, energy transition, food, healthcare, industrial, technology, and transportation. With a strong focus on responsible finance, the company supports businesses to access capital, manage risk, and make the transition to more sustainable business models.

Central to the company’s financial infrastructure is its global treasury function, based in Dublin, Ireland. This team manages the liquidity and Treasury risk management needs of the group. The team consists of an experienced group of highly qualified financial services professionals who are dedicated to meeting the treasury needs of DLL, covering everything from cash management to foreign exchange and interest rate hedging.

A critical turning point

A core element of DLL’s risk strategy is the use of interest rate swaps to mitigate exposure to interest rate volatility. Given the size and complexity of its global lending portfolio and the direct impact that interest rate movements can have on company earnings, these instruments are essential for maintaining financial stability and predictability.

“We have two large portfolios – euro interest rate swaps and US dollar interest rate swaps,” explains Coyle, Head of Hedge Accounting at DLL. “To mitigate the fair value movements of those swaps, we run macro fair value hedge accounting models in euros and dollars.”

These models allow DLL to align the value of derivatives with the risks they offset. This reduces earnings volatility, provides a transparent view of the company’s risk position, and ensures compliance with accounting standards.

For years, DLL’s hedge accounting models were developed and maintained by a previous provider. Due to regulatory requirements they were no longer allowed to support the models beyond 2025.

Faced with a tight deadline to transition to a new solution, DLL launched a competitive tender process to identify a partner capable of building fair value macro hedge accounting models for both their euro and dollar swap portfolios. To prevent disruption to DLL’s hedge accounting process, replacement models needed to be ready for testing in early 2025, ahead of full deployment a few months later. This challenging timeline relied on delivering a complete, fully tested and operational solution as quickly as possible, rather than following a more gradual, phased approach.

Zanders’ approach stood out because they proposed building a Python-based application from the start – delivering the end product we needed, and within the timeline that we wanted.

Coyle, Head of Hedge Accounting at DLL.

“Another provider suggested an Excel build first, then a Python version later – essentially two separate projects, which would not only take a lot longer but also impacted on the price as well.”

Rapid prototyping and agile development

Once selected in late 2024, Zanders began working on replicating the models. Despite having no access to the original model’s codebase, the Zanders team was able to reverse engineer DLL’s hedge accounting methodology in just a few weeks based.

“They started in December, and by the end of January we had our first models ready for testing,” Coyle recalls.

From February to March, both Zanders and DLL conducted independent back testing using the legacy model as a benchmark to validate outputs. This rigorous comparison helped ensure consistency and build confidence in the new models.

“This gave us comfort that we were on the right road,” Coyle says. “We did find a few things that we wanted to change – such as adding certain risk controls  – and the Zanders team was very open to suggestions. These were implemented quickly, and it was a very easy process.”

By the end of March, the new Python-based applications was fully operational, enabling a seamless transition with no disruption to DLL’s interest rate risk strategy.

Faster, simpler, more integrated

While the primary focus of the project was the replication of DLL’s existing models, it ultimately evolved into an opportunity to streamline and modernize the company’s hedge accountancy processes.

“The new model is much quicker,” explains Marais, Treasury Hedge Accountant at DLL. “The old model had features we didn’t really use that slowed down performance. This was a chance to simplify and focus on what we needed.”

One of the most valuable technical gains was improved alignment with DLL’s internal treasury systems.

“With the new model, we are now able to utilize reports from our own treasury system – that was a significant improvement,” says Marais. Previously, the team had to rely on reports from Rabobank systems and model calculations, but the new model directly interfaces with DLL's internal system. “This makes our work process much quicker and more efficient compared to previously,” Marais adds.

Beyond the technical delivery, the project also stood out for the way it was executed. Working under a tight deadline, collaboration between the teams was critical and made a real difference to the overall experience. The DLL team particularly appreciated Zanders’ responsive and collaborative approach.

IT projects can be quite stressful, but this one was remarkably stress-free. That’s a reflection of a robust, collaborative process and great people. If someone asked whether we’d recommend the Zanders team for a project like this, we wouldn’t hesitate.

Coyle, Head of Hedge Accounting at DLL.

Interested in transforming your treasury infrastructure?

Whether you're navigating regulatory change, replacing legacy models, or looking to gain deeper insights into your risk exposure, Zanders combines advanced modeling with deep industry expertise to deliver accurate and audit-ready valuations.

Find out more about how Zanders can support your treasury and risk management transformation.

In the high-stakes world of Private Equity (PE), where exceptional returns are non-negotiable, value creation strategies have evolved far beyond financial engineering. Today, operational improvements, including in treasury and financial risk management, are required to yield high-quality returns. Among these, FX risk management often flies under the radar but holds significant untapped potential to protect and drive value for portfolio companies (PCs). In this article, we explore the importance of identifying and managing FX risks and suggest various quick wins to unlock value for portfolio companies.

The Untapped Potential of FX Risk Management in Value Creation 

PCs operating across multiple countries frequently lack a cohesive treasury and financial risk management approach. For example, bolt-on acquisitions often lead to fragmented teams, processes, systems and banking structures, while exposure to an increasing number of currencies creates financial risk that often remains invisible to central teams. This complexity is exacerbated by ad hoc and localized FX hedging practices, where PCs may not have access to competitive FX rates from their banking partners or access to a multi-bank FX dealing platform. 

For PE firms, FX risk often represents a hidden drain on EBITDA and cash flow. FX mismanagement can erode margins and impact portfolio company value. Hence the importance of uncovering financial and operational inefficiencies and building streamlined processes to manage FX exposures effectively. Proper FX risk management, which goes beyond hedging by means of financial instruments, not only mitigates financial risk but directly contributes to value creation by reducing cash flow volatility, reducing costs, increasing control, and increasing transparency. 

In this simplified example, a private equity-owned manufacturing firm, focused on expansion into emerging markets, was losing millions annually due to unmanaged foreign exchange (FX) exposures. The culprit? Decentralized treasury processes, idle bank balances in multiple currencies, and hidden FX risks within operational flows. The firm can address and manage these inefficiencies by using FX forward contracts to lock in exchange rates for future transactions and employing centralized treasury technology to monitor and control FX exposures across all operations. By addressing the inefficiencies, the firm reduced financial losses, stabilized its margins, and reinvested savings from FX gains into growth initiatives.

Quick Wins in FX Risk Management 

In your search of value creation, we suggest two potential quick wins to unlock PC value.  

Enhance Exposure Visibility 

Check whether your PCs operate with a clear understanding of their FX exposure landscape. Conducting a quick scan early in the investment lifecycle should identify, amongst others: 

• Where exposures are originated (e.g., revenues, costs, intercompany transactions) and if there are natural hedging possibilities. 

• Idle cash balances or loans in nonfunctional currencies, which create FX volatility. 

• The potential impact of these exposures on financial results through FX risk quantification. 

Private equity sponsors can facilitate the creation of a centralized treasury function that i) establishes a policy and process for FX risk management, ii) implements an FX dealing platform for efficient and competitive FX trading with banks, iii) monitors balances to reduce cash balances in non-functional currencies, and iv) implements netting arrangements to streamline intercompany payments and minimize cross-border transactions. 

Hidden FX Risk Discovery 

Business practices, such as allowing customers to pay in multiple currencies or a pricing agreement based on currency conversions, often lead to hidden FX risks and are a common pain point which is overlooked. For instance, a PC may receive customer payments in USD but agree to link the actual payable amount to the EUR/USD exchange rate, creating an implicit EUR exposure that impacts margins and cash flow.  

To address hidden FX risks, a private equity sponsor can help portfolio companies achieve a quick win by conducting a thorough analysis of their pricing models and operational agreements to identify implicit currency exposures, then implementing (soft) hedging techniques, such as adjusting pricing strategies to match revenue and cost currencies, renegotiating contracts with suppliers and customers to align payment terms, and utilizing natural hedging opportunities like balancing currency inflows and outflows, thereby minimizing net exposure before deciding to resort to financial instruments. 

In summary, as illustrated by the above quick wins, streamlining treasury processes can yield: 

• Hard dollar savings: Reduced FX costs by accessing competitive spreads. 

• Soft dollar savings: Enhanced decision-making through better visibility on exposures and reduced operational complexity. 

Consider this: A PE-owned retail chain expanded into international markets and faced profit erosion due to unmanaged FX risks and fragmented treasury processes. The sponsor conducted a quick scan to map exposures, uncovering mismatched revenue and expense currencies, a scattered landscape of bank accounts with idle balances, and operational inefficiencies. Hidden FX risks, such as supplier pricing tied to EUR/USD rates and uncoordinated customer payment options in multiple currencies, were also identified. Leveraging these insights, the sponsor centralized FX management by consolidating bank accounts, aligning supplier contracts with revenue streams to create natural hedges, and introducing competitive trading for FX transactions. They also established internal multilateral netting to streamline intercompany settlements, reducing FX costs by 20%.  

Measurable Results 

Integrating exposure identification and quantification, hidden risk discovery, and treasury process optimization into a single strategy enables PE firms to achieve more stable margins, cost savings, improved cash flow predictability and liberates capital for reinvestment. Furthermore, a proactive approach to FX risk management provides improved transparency for decision-making and LP reporting and strengthens financial resilience against market volatility. By embedding these robust treasury and financial risk management practices, PE sponsors can unlock hidden potential, ensuring their portfolio companies are not only protected but also positioned for sustainable growth and profitable exits.

Conclusion 

In the dynamic world of private equity, optimizing FX risk management for internationally operating PCs is a crucial strategy for safeguarding and enhancing portfolio value. Reflect on your current FX risk strategies and identify potential areas for improvement. Are there invisible exposures or inefficiencies limiting your portfolio’s growth? Take the initiative today - evaluate your FX risk management practices and make the necessary refinements to unlock substantial value for your portfolio companies. Embrace the opportunity to drive significant improvements in their financial resilience and overall performance. 

If you're interested in delving deeper into the benefits of strategic treasury management for private equity firms, please contact Job Wolters. 

Recently, Zanders' own Sander de Vries (Director and Head of Zanders’ Financial Risk Management Advisory Practice) and Nick Gage (Senior VP: FX Solutions at Kyriba) hosted a webinar. During the event, they outlined strategies for optimizing corporate treasury FX programs. The duo analysed risk-increasing events from recent years, identified potential challenges that 2025 may pose, and discussed how to address these issues with a strong risk management policy.

Analyzing 2024 Events 

The webinar began with a review of 2024's key financial events, particularly the Nikkei shock. During this period, the Japanese Yen experienced significant appreciation against the USD, driven by concerns over U.S. economic projections and overvalued tech stocks. This sharp rally in the JPY led to a wave of unwinding carry trades, forcing investors to sell assets, including stocks, to cover their positions. Additionally, western central banks continued their gradual reduction of interest rates throughout 2024, further influencing market dynamics. The webinar explored the correlation between these economic shocks and anticipated events, particularly their impact on EUR/USD rate fluctuations. By examining how past events shaped market volatility, risk managers can better prepare for potential future disruptions. 

Coincidentally, the webinar was held on November 5, 2024, the same day as the U.S. presidential election—a key topic of discussion among the hosts. The election outcome was expected to have a significant impact on markets, increasing both volatility and complexity for corporate risk managers. Shortly after the session, another Trump victory was announced, leading to a strengthening of the USD against the EUR, even as the Federal Reserve reduced interest rates further in the following days. In addition to the election, rising geopolitical tensions and ongoing reductions in base interest rates were highlighted as potential catalysts for heightened market volatility. 

Challenges and Opportunities in 2025 

By reflecting on past challenges and looking ahead, risk managers can optimize their policies to better mitigate market shocks while protecting P&L statements and balance sheets. Effective risk management begins with accurately identifying and measuring exposures. Without this foundation, FX risk management efforts often fail—commonly referred to as “Garbage In, Garbage Out.” A complete, measurable picture of exposures enables risk managers to select optimal responses and allocate resources efficiently. 

During the webinar, a poll revealed that gathering accurate exposure data is the biggest challenge in FX risk management. Common issues include fragmented system landscapes, incomplete data, and delays in data registration. Tools designed for FX risk planning and exposure analysis can address these gaps by verifying data accuracy and ensuring completeness. 

A sound financial risk management strategy considers three core drivers: 

1- External Factors: These include the ability to pass FX or commodity rate changes to customers and suppliers, as well as regulatory constraints faced by corporate treasuries. 

2- Business Characteristics: Shareholder expectations, business margins (high or low), financial leverage, and debt covenants shape this driver. 

3- Risk Management Parameters: These encompass a company’s risk-bearing capacity (how much risk it can absorb) and its risk appetite (how much risk it is willing to take). 

By incorporating these drivers into their approach, risk managers can design more effective and strategic responses, ensuring resilience in the face of uncertainty. 

Understanding these core risk drivers can enable risk managers to derive a more optimal response to their risk profile. To design an optimal hedging strategy, treasurers need to consider various risk responses, which include: 

• Risk Acceptance 

• Risk Transfer  

• Minimization of Risk  

• Avoidance of Risk  

• Hedging of Risk 

Treasury should serve as an advisory function, ensuring other departments contribute to mitigating risks across the organization. While creating an initial risk management policy is critical, continuous review is equally important to ensure the strategy delivers the desired results. To validate the effectiveness of a financial risk management (FRM) strategy, treasurers must regularly measure risks using tools like sensitivity analysis, scenario analysis, and at-risk analysis. 

• Sensitivity analysis and scenario analysis evaluate how market shifts could impact the portfolio, though they do not account for the probability of these shifts. 

• At-risk analysis combines the impact of changes with their likelihood, providing a more holistic view of risk. However, these models often rely on historical correlations and volatility data. During periods of sharp market movement, volatility assumptions may be overstated, which can undermine the reliability of results. 

We recommend a combined approach: use at-risk analysis to understand typical market conditions and scenario analysis to model the impact of worst-case scenarios on financial metrics. 

To further enhance hedging strategies, some corporates are turning to advanced methods such as dynamic portfolio Value-at-Risk (VaR). This sophisticated approach improves risk simulation analysis by integrating constraints that maximize VaR reductions while minimizing hedging costs. It generates an efficient frontier of recommended hedges, offering the greatest risk reduction for a given cost. 

Dynamic portfolio VaR requires substantial computing power to process a large number of scenarios, allowing for optimized hedging strategies that balance cost and risk reduction. With continuous backtesting, this method provides a robust framework for managing risks in volatile and complex environments, making it a valuable tool for proactive treasury teams. 

Conclusion: Preparing for 2025 

2024 was a year that brought many challenges for risk managers. The market uncertainty resulting from many larger economic shocks, such as the U.S. Election and multiple geopolitical tensions made an efficient risk management policy more important than ever. Understanding your organization's risk appetite and bearing capacity enables the selection of the optimal risk response. Additionally, the use of methods such as dynamic portfolio VaR can promote your risk management practices to the next level. 2025 looks to create many challenges, where treasurers should stay vigilant and create robust risk management strategies to absorb any adverse shocks. How will you enhance your FX risk management approach in 2025?   

You can view the recording of the webinar here. Contact us if you have any questions.

One of the walls in its Amsterdam headquarters shows the evolution of the Philips business. Philips’ roots lie in Eindhoven, where, in 1891 Gerard Philips started producing light bulbs in an empty factory building. When he was later joined by his research-oriented brother Anton, the firm enjoyed its first major business stimulus. Through vertical operation, with their own factories and dependent suppliers, they took their first big steps towards success.

Continuing to develop through the production of radios and TVs, followed by Philishave electrical razors and inventions such as the Compact Cassette and the Compact Disc as new audio media, the company then expanded into professional products, such as medical equipment, studio mixers and computers. Today, Royal Philips is a diversified technology company that focuses on innovation in the healthcare sector.

Currency risks

The internal structure of this multinational comprises two axes, the business groups and the markets. The business groups are organized into product types: medical equipment, lighting and domestic appliances – along with variations on these themes. The business groups develop and produce the products and distribute them to their international markets where the products are sold. Together, in a matrix, these two form what’s known as the business-markets combination. Commercial employees (‘the business’) and financial managers (‘finance business partners’) are active in both axes and it’s their joint responsibility to ensure that a healthy and successful business can develop and thrive.

We are active in over 100 countries and we process EUR 100 billion in internal payments every year, so, clearly, we are highly exposed to currency risks.

Gabriel van de Luitgaarden, Senior VP, Head of Financial Risk & Pensions Management at Philips.

In the logistics, financial stream from factories to markets, all manner of invoices are sent back and forth and, eventually, money from customers flows through the market to the Treasury. Hedging currency risks is expensive and prevention is always better than cure, he muses: “If you don’t properly understand what the risk is and what effect it will have, there’s not a lot you can effectively do about it. But by quantifying risks you can get a handle on them and decide whether you want to take any action. You have to consider aspects such as what will happen to EBITA if you do nothing, how much lower will it be if you hedge, and how much will it all cost? It’s all about how much risk you are prepared to accept.”

Currencies fluctuate in relation to one another and this strongly influences a multinational’s earnings and financial reporting. “We deal with risk management every day,” says Van de Luitgaarden. “But the people who work in the business very rarely do so. They see it as a specialism, but that’s not really the case. People in the business should be much more involved with it, asking themselves what is acceptable and what should I do about it?”

Argentinian toothbrushes

Philips initiated a project to define a new FX policy and hedging strategy for currency risks. Above all, it had to give the people in the business much more insight into the impact that fluctuations in exchange rates have on their performance, and show them how important it is for them to understand and manage currency risks.

“In many multinationals the business part thinks that the Treasury will just hedge currency risks, despite the fact that these currency fluctuations cannot simply be neutralized,” says Zanders consultant Lisette Overmars, who was involved in the project. “You can manage it all, but eventually you’ll need to come up with other solutions.”

Van de Luitgaarden adds: “That’s why we explained to the business that we can provide more insight into the risks and buy them time through hedging, but we cannot completely protect them. There’s no magic formula that can shield you from the effects of currency fluctuations.”

This bespoke form of hedging is primarily directed at countries whose currencies typically lose value, sometimes suddenly performing really well, but eventually losing value relative to harder currencies like the euro and the dollar. “That’s because emerging market economies are less solid,” says Van de Luitgaarden. “There is often high inflation and less political stability. If you don’t do anything about the prices in the respective countries, than the fact that their currencies lose value against the euro will progressively erode your income. There are extreme cases where we can lose 30 to 40 per cent in value in a year, which cannot be remedied by hedging. In such cases you have no option but to constantly increase your product prices.” It means, for example, that the price of a toothbrush in Argentina can suddenly rise by 10 per cent from one month to the next. “But not everyone in the business does this, which is why education plays such an important role in the project; it has to be visible. For many people the effect that currencies have on results was far from clear. We therefore developed an FX model to make the currency footprint visible. It shows us which currencies our EBITA is derived from and the extent of our various exposures. Thanks to this new policy we can make EBITA more predictable and less volatile, although we still cannot completely cover the risks.”

The real risk management is mainly to be found in the market; for example, where can you best procure in order to reduce your susceptibility to currency risks? Van de Luitgaarden says: “Take Japan, for example, where we are huge in medical equipment, representing substantial income in Japanese yen. But we don’t spend anything there because we don’t buy there. Three years ago the Bank of Japan began to devaluate the yen to stimulate the country’s economy, and this had huge repercussions for us. A 20 per cent drop in the value of such a currency results in our sales and profit also falling by 20 per cent – that’s just how it works. And if you don’t do anything about it, the situation won’t change. In addition to short-term hedging, to reduce your vulnerability to such currency fluctuations you need to consider procuring more in yen, or even opening a factory in Japan.”

More consistency and efficiency

The old way of working, centered on a policy set up about 18 years ago, was based on a Philips that was both organized very differently and was much bigger than it is today. Van de Luitgaarden continues: “Back then we had 12 product divisions but our performance, in particular, was managed differently. Every factory had its own P&L account and budget. If a factory was exposed to currency risks it had to reduce them itself and if any hedging was necessary that too had to be done by the factory in question. Now we measure our performance at a higher level, via the business-markets combinations. The factory’s P&L is now less important – it’s about the result of the group as a whole. The exposures that you hedge are therefore the ones that affect the result of the group. It’s much more efficient. If you're in a ‘long position’ in a particular currency, you sell it, in a single transaction. In the past this was done factory-by-factory, in several transactions. Given the tens of thousands of transactions that we used to do, this now represents a huge efficiency boost. The spread is no longer paid multiple times by buying and selling the same currency. We hedge currencies in the same way. We’re looking for risk reduction, so it makes little sense if everyone follows their own policy – it has to be done consistently. That’s actually more important than the net group exposure.

It's a combination of the two: hedging at group level and the highly consistent application of our hedging policy. That has an enormous  impact on the risk reduction that’s achievable.”

Headwinds and tailwinds

The project was launched in September 2014 and the new FX policy went live in November 2015. Given that it involved the whole organization, which was used to doing things the way they’d been done for the past 18 years, it was a formidable challenge to make the necessary changes. Moreover, three weeks after the start of the project it was announced that the company was to be split into the lighting division (Lighting Solutions) and a combination of the Healthcare and Consumer Lifestyle divisions (Royal Philips). The organization’s focus, particularly at the IT and Treasury departments, was then obviously on the impending split. It affected much more than just the business; it also had repercussions for Tax – which had to be paid in 100 countries – and Accounting and how it would all be technically processed in the books with the use of hedge accounting. All-in-all, it was a sea change.

“Its implementation was indeed quite overwhelming,” concedes Van de Luitgaarden. “It was complex material for which there were no ready-made solutions. We were dealing with people in the business who did not fully understand the situation; they only took into account what they did themselves and didn’t look at the bigger picture. This sometimes made it difficult to explain. Take, for example, a factory in the UK making mother & child-care products.

A high exchange rate of the pound against the euro at the time decimated profitability because procurement and manufacturing costs just kept on rising. But looking at Philips as a whole, the rise in the value of the pound was a good thing; we earned more pounds than we spent. We didn’t have to buy pounds to cover costs; we sold pounds to cover our sales. But try explaining that to the UK factory – at the end of the day currencies influence bonus targets. Sometimes you have a tailwind and at other times a headwind.” Last year was a good year for those who sold in dollars; which rose against the euro. “Thanks to the dollar being so much stronger, our sales in 2015 were EUR 2 billion higher, which is an awful lot on a total of 24 billion. That’s something to take into account, because it was certainly a windfall. This new way of looking at things needs time.”

What else has Zanders done for Philips?

• Treasury management: the extrication of treasury operations and the setting up of new treasury functions for Philips’ former television business (TP Vision) and the lifestyle entertainment business (WOOX Innovations).
• Risk management: the development of a new commodity price risk management framework.

Do you want to know more about risk management for corporations? Contact us.