How do you handle currency effects from international operations in the disaggregation?
Currency effects are EBITDA changes that arise from exchange-rate swings — relevant when there are international operations. In the disaggregation bridge they should be shown separately from operating EBITDA growth.
a euro-reporting platform with a US subsidiary. Year 0: US EBITDA $20m, EUR/USD 1.10 → €18.2m. Year 5: US EBITDA $25m, EUR/USD 1.15 → €21.7m. Operationally, US EBITDA grew by $5m (+25%), but in EUR, because of FX translation, only by €3.5m.
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| Driver | Effect | Calculation |
|---|---|---|
| Domestic growth (EUR) | +€10.0m | €40 − €30 |
| US operating growth (USD) | +$5.0m | $25 − $20 |
| Currency translation | −€1.0m | – |
| Net US growth in EUR | +€3.5m | €21.7 − €18.2 |
- US EBITDA Year 5 at Year 0 FX: $25 / 1.10 = €22.7m (what it would be without the FX change).
- US EBITDA Year 5 at Year 5 FX: $25 / 1.15 = €21.7m (what it actually is).
- Currency drag: €22.7 − €21.7 = €1.0m.
with aggressive international exposure, the FX hedge typically runs through NDFs or swaps. Hedge costs reduce EBITDA marginally (typically 0.5–1% of the FX volume). In the middle market, FX hedging is often not standard — full FX exposure.
Question: "How would you handle FX risk in the pitch?"
Answer: "A separate currency bucket in the bridge. Sensitivity test: at ±10% EUR/USD, what EBITDA effect arises. For international-heavy targets, FX hedging is often a day-1 initiative — it protects sponsor returns from exchange-rate swings"