Strategic Treasury: Don’t report simple coverage; show business consequences.

Tip 2: Don’t report simple coverage; show business consequences.

Positions versus Business Impact

Many treasurers and systems report simple exposure coverage numbers to CFOs and the board. “Our copper is 80% covered” for instance or “we have 50 tonnes of cocoa unhedged”.

This is a bit like saying “we’re going on holiday and we’re 80% packed.” It’s great unless the missing 20% contains your passport. Or it’s like advising the fuel tank is 70% full; which is only informative if you know how far you need to travel and your expected rate of fuel consumption.

Consider two European manufacturers who say they are 60% hedged on natural gas purchases.

Suppose for Company A, a 20% increase in the natural gas price reduces annual EBITDA by EUR 1m, while for Company B it reduces it by EUR 20m.

But further suppose Company A has a forecast annual EBITDA of EUR 2m and Company B EUR 200m.

Same hedge ratio; totally different business impact under an adverse price move.

A strategic treasurer doesn’t’ just report a number but shows what the business impact of that number could be in terms the broader business understands. These could be potential impact on EBITDA, operating margins or budget.

A tale of two airlines

It’s instructive to compare the recent headline hedge coverage reporting of Ryanair and Lufthansa.

Ryanair’s FY26 annual report prominently reported that the airline’s FY27 jet fuel was 80% hedged at $668/tonne, which it described as derisking the business in volatile markets.

But the reported hedge coverage ratio hit some turbulence. In its Q1 FY27 update Ryanair said the 20% unhedged fuel was affected when jet-fuel prices doubled, contributing to higher operating costs and a 34% decline in quarterly profit. Whilst this is not internal report which may have contained more information commodity risk managers and treasurers should be strategic partners to all stakeholders, external and internal.

“80% hedged” is a good example of a number that sounds solid and informative but often isn’t. It tells you the coverage, not whether that coverage is appropriate, what it protects, or what happens if markets move unfavourably. Is it a tolerable risk or a material threat to the budget?

Contrast Ryanair with Lufthansa.

In its 2025 Annual Report Lufthansa reported that 76% of forecast 2026 fuel requirements were hedged. It also told the reader that, after hedging, a 10% increase in kerosene prices would increase 2026 fuel costs by approximately EUR 409 m.

Now stakeholders know not only the jet fuel position but the business impact of volatility on that position.

What to report instead?

Any coverage ratio reported (including 100% if there is basis risk), should be accompanied by a measure of what business impact an adverse price move could have. If the risk is non-linear a couple of critical business ones could also include sensitivities for different price moves. The period being impacted should also be ideally included as well.

Some examples of business outcomes to discuss to enhance the strategic value of your reporting for management and other stakeholders includes:

1. Residual earnings sensitivity:

“A 10% increase in copper prices will reduce FY 27 EBITDA by USD 4.2m after hedging.”

2. Gross-margin sensitivity:

“A 10% increase in aluminium would reduce H1 gross margin by 35 bps.”

3. Cash-flow-at-risk:

“If the Aussie dollar price increases 15% over the next year, our operating cash flow will be reduced by AUD 12m.”

4. Budget-at-risk:

“At current hedge levels, a 15% rise in natural gas prices would cause us to incur a EUR 6m deficit using our current FY27 budget rate.”

5. Covenant headroom under stress:

“Even under a 20% negative commodity-price shock, leverage remains below 2.8x versus a 3.5x covenant.”

6. Time-to-impact:

“Current FX hedges protect the P&L for six months; exposure rises sharply from Q3 onward.”

A hedge ratio is a hedge ratio is a hedge ratio?

There’s another important layer for a purchaser or importer to consider: the hedge ratio alone can be misleading because financial hedges may not be the only protection.

A company might technically be only 50% financially hedged, but another 30% of its exposure is actually protected by potential customer price pass-through. Conversely, it might be 90% financially hedged but have major basis, volume or timing risk.

Strategic treasurers need to move away from reporting “How much are we hedged?” to “This is the business impact of adverse financial prices.” This allows senior management to decide whether the potential financial risk is within the agreed risk appetite or whether they need to act.

Next Tip: Replace a Single Forecast with Scenarios