Volkswagen steps up currency hedging

European car manufacturer Volkswagen (VW) has increased its use of foreign exchange hedging, after seeing its profits in the first half sink by 55% year-on-year, in part due to the strength of the euro.

VW said it will now hedge two thirds of its currency exposure, in a strategic reversal for the company that had previously only hedged up to 40% of its €5 billion net currency exposure. Its gross currency exposure is more than €10 billion annually, but half of that is hedged ‘naturally’ by producing cars locally, for example in Brazil, Mexico and China.

The turnaround may have been prompted by this year’s first-half results, in which the company’s profits suffered largely due to adverse exchange rates. Group profit before tax for the first half was just over €1 billion, a 55% drop on the same period last year.

"The first half of the year was primarily influenced by declining sales in the important markets and by the continuing strength of the euro versus key currencies, such as the US dollar, the pound sterling and the Japanese yen," Volkswagen said in a statement released with the report earlier this month. The euro’s strength against the US dollar was particularly crippling and led to "deteriorating export prospects", it added.