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International Flavors & Fragrances Inc.
Portfolio Risk ManagementProposed Solutions And
Improvement Initiatives
Jan Ambergen, Treasury Director
23rd May 2016
Content: “Risk Walk Through”
1. Company overview
2. Business Risk Inventory
3. External risks
4. Operational risks
5. Financial Risks
… what remains…
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Global Risk Player
“Know the rules of the game”
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Credit & Collection characteristics
Financial:
Collecting the global turnover USD 3.0 bln in all COD’s
Manufacturing / invoicing facilities roughly 35 in 30+ countries
Accounts Receivable USD 550-600 mio
“Day Sales Outstanding” , around 70 days
People:
Senior Credit Managers in all regions
Junior collectors in Budapest / Hangzhou / Chennai
CC reporting into Treasury (Corp Treasurer – CFO)
Systems:
One instance SAP globally
Dispute and collection models SAP implemented
Use of SAP data cubes
Procedures: Centralized approval of new customers and term extension
Junior collectors with customer touch, escalation to SCM/Sales
Partnership with sales
“30 days overdue rule” => ownership sales
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Content: “Risk Walk Through”
1. Company overview
2. Business Risk Inventory
3. External risks
4. Operational risks
5. Financial Risks
… what remains…
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Business Risk Inventory
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Risk Management
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Calculated Risk
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Content: “Risk Walk Through”
1. Company overview
2. Business Risk Inventory
3. External risks
4. Operational risks
5. Financial Risks
… what remains…
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Business Risk Inventory
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Case 1: Nigeria
Nigeria suffers from the low oil price. Summer 2015, Nigerian
Central Bank issues rules for FX allocation, promoting domestic
industry. Foreign currency is allocated based on industry priority
and through an auction system. Opening a Letter of Credit takes 30
– 60 days.
The container should go on the vessel in a few days time. LC is emailed
from the opening bank, but original LC is somewhere in the
corresponding banking network. Customer will run dry if the vessel is
missed:
Do you release for invoicing and shipment ?
A: “yes, as long as I get an LC I’m OK”
B: “no , as I don’t have the original LC, (internal rule) and I don’t want to
have an overdue. I might lose the value of the container.”
C: Check with sales the consequence of shipment delay and balance
consequence for the customer against value of LC
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External Risks
Competitor: “…. outclassing you in ….”
Competition drivers:
• Quality
• Technology
• Service model
• Price
• Payment term
Political / Economic instability: “ .. gradual/sudden default ..”
• Trade Insurance, … limited reach …
• Avoid or simply accept ?......
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Business Risk Inventory
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Internal / Operational Risks
Management information: “....lack of … , … ineffective…..”
• Monthly reports on Net Working Capital components
• Weekly information provided to sales mgrs
• Expanding to dash board solutions
Information technology: “.. non integrated… , .. inefficient…”
• One SAP / SAP data cubes
• Data integrity: Central Master data protocols
• Expand e-invoicing and workflow solutions
Compliance: “… reputational risk …”
• Central Trade compliance group …. e.g. Iran
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Management information (example)
AR performance by BU/region
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BU 1
BU 1
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Business Risk Inventory
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Case 1: Global customer: “high risk”
One of your global customers is in a serious financial situation.
The global rating agencies have recently downgraded to BB. You
are aware of severe cash flow issues and sales informs you
restructuring is not smooth. Outstanding AR balance is several
mio, overdue under control. Customer will move to the competition
in case you would stop supply.
What would you do from a risk perspective?
A) Move terms to prepay, I don’t want to go to a write off situation.
B) Continue to supply and cross your fingers
C) Provide financial risk overview and commercial overview to
senior mgt and let them take a decision.
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Financial Risks
Credit:
• Scoring: qualitative / quantitative
Default:
• Debt recovery services: cost / benefit ratio
Emerging Markets:
• “50% of turnover is in EM”
Foreign currency:
• Hedging
• Pricing currency
• Economic risk
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Management information (example)
Country Risk
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Content: “Risk Walk Through”
1. Company overview
2. Business Risk Inventory
3. External risks
4. Operational risks
5. Financial Risks
… what remains…
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“I have chosen the proper INCO term, so
I’m happy I’m insured…….
…… but lost the customer as I could not
deliver on time.”
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International Flavors & Fragrances Inc.
Remaining
Q&A

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