Treasury & Procurement - the perfect partnership for commodity risk management

Transcription

1 Treasury & Procurement - the perfect partnership for commodity risk management David Thilthorpe Stockholm 23 rd April, 2015

2 Content The Tetra Laval Group The role of Group Treasury Commodity risk management (CRM) evolution Polymer hedging experience Lessons learnt - what value can Treasury bring to CRM Partnering with SEB

3 Tetra Laval Group Summary

4 Three independent industry groups Focus on technologies for efficient production, packaging and distribution of food Swedish origin headquartered in Swedish Switzerland origin headquartered in Switzerland Privately Privately owned owned Tetra Laval Group Board Tetra Laval International Tetra Laval Group Support Functions Tetra Pak DeLaval Sidel

5 Tetra Laval in summary Net sales 13.4 bn, 34,000 employees worldwide (Dec 2013) bn packages sold 2013

6 The Financial Support and Control Function to the Board Finance Corporate Finance Treasury Equipment Finance Solutions Group Risk Management and Insurance Group Financial Planning and Reporting Group Consolidated Accounts and Management Information Internal Audit Reporting directly to the Audit Committee M&A Operations & Administration

7 Role of Group Treasury

8 Tetra Laval Group Treasury Responsible for managing FX, interest rate & commodity risk All foreign exchange & interest rate risk are managed under risk management policies and natural hedging opportunities Historically Procurement managed all raw material risk 100% 80% 60% 40% 20% 0% FX Commodity IR Remaining Exposure today not completely managed Hedgeable Fixed without Hedging

9 Commodity Risk Management Evolution

10 Raw material risk management objective Reconciling both Procurement s and Treasury s objectives TLI s financial risk management objective is to ensure an optimal balance of risk reduction, cost, flexibility and timely informed response to market developments and business needs Raw material purchase is based upon securing high quality supply at the right price Supply Cost Quality Hedging provides an opportunity to manage the cost more effectively

11 Aluminium price risk management Procurement requested Treasury to manage aluminium price risk in 2009 Risk Committee consisting of representatives from Procurement, Commercial Operations & Treasury meets every 6 weeks Hedging is executed using a combination of mechanical & tactical hedging The main factors considered for the tactical hedging are:

12 Polymer Hedging Experience

13 Polymer production Multiple indexes with varying degrees of liquidity Source: Deutsche Bank

14 Polymer price risk management Polymer is the most recently hedged raw material exposure Limited liquidity historically therefore difficult & expensive to hedge Some contracts have complex multi index formulas In 2011, 2 banks offered us limited polymer hedging, one utilising a partnership with a petro chemical company Procurement reluctant to hedge, therefore Treasury started trial hedging program alone In 2013 we started to hedge directly with a non-bank institution In 2014 SEB were able to provide us polymer hedging support s

15 Polymer price risk management Due to limited liquidity, we also hedge Naphtha as a proxy for ethylene

16 Polymer price risk management High level of polymer price volatility + 25 % - 30 %

17 Polymer price risk management The next steps in polymer hedging Working together with Procurement to: Review all contracts to assess hedgeable indexes & increase hedgeable portion of exposure Discuss possibilities to amend some contracts to make them more hedgeable, where commercially acceptable for Procurement & Suppliers Obtain agreement on appropriate polymer hedging policy Assessing opportunities to work with more petro chemical companies increase liquidity & market knowledge s

18 What value can Treasury bring to commodity risk management

19 Treasury value proposition Only 44 % * of Treasurers are responsible for commodity risk management Risk management expertise used for FX & interest rates can be applied to growing volatility in commodity markets Holistic view of total Group financial risks: Cash Flow at Risk modeling understanding the correlations Impact on FX exposure forecasts & FX risk management Review commodity contracts: FX clauses Consideration of more hedgeable indexes Underlying invoice currency review Access to banks and non-bank counterparties to improve market knowledge * GT News Risk Survey 2013 s

20 CFaR Model development Assessment of risk reduction from correlations EURUSD & Oil correlation

21 Group economic exposure analysis: example data only Utilise FX rates & commodity prices to compare historic economic exposure levels & support hedging strategy

22 Partnering with SEB

23 Partnering with SEB SEB has provided significant support to our commodity risk management SEB is our no.1 bank for commodity hedging We now hedge aluminium, naphtha, ethylene & LDPE with SEB SEB is developing a wider network with petro chemical companies which enables us to benefit from increased liquidity & improved pricing SEB has a very strong commodity research team, Bjarne & Par have provided presentations to senior management to support our hedging strategy process s

24 Partnership with Procurement more of a marriage and all good marriages have their ups & downs Treasury & Procurement have come a long way together over the past 5 years through some volatile periods (both in the markets & the meeting rooms) Significant increase in the market knowledge of the end to end value chain Significant increase of the impact of commodities on the total Group financial risk There is still a lot more to be done and like all good marriages we may have further ups & downs but we are in this relationship for the long run

25 Thank you any questions?