Managing Risks For Performance On a Global Scale

Transcription

1 Managing Risks For Performance On a Global Scale Eurofinance Paris - October 2004 Putting the Building Blocks in Place to become a global player -Gérard Adsuar, Senior Vice President, Finance and Treasury Department, EADS -Jean-Baptiste Pons, Vice President, Head of Corporate Finance and Treasury, EADS Agenda Assessing the environment and the risks page 1 Responding to risk with proprietary integrated solutions page 5 Wrap Up page 17 1

2 EADS: a Global Leader. Boeing EADS LM NG BAE Raytheon GD Thales* FM* L3 Dassault Saab 4,5 3,3 1,9 44,8 30,1 28,2 23,2 18,2 16,1 14,7 10,6 6,3 Revenues No. 2 NG GD Raytheon FM* Thales* Saab L figures for Aerospace & Defence activities In bn (1$ = ; 1 = 0.691, 1 SEK = ) with leadership in all segments Helicopters (Eurocopter) EADS Boeing BAE LM Satellites (Astrium) 1 st 3 rd 18,9 18,3 5 3,5 46,8 36,4 24,4 92,9* 69,3 68,2 179,3 Orderbook No. 1 *Reported backlog of firm contractual orders Thales & FM backlogs are estimated Commercial Launchers (Ariane) 1 st 1 st 3 rd Commercial Aircraft MTA (Airbus) 4 th Military Aircraft 2 nd Missiles (MBDA, LFK) 2 One Group Many Markets Airbus Military Transport Aircraft Aeronautics** Space (Astrium 100% since Jan. 2003) Defence and Security Systems** Order book bn 20.0 bn 9.8 bn 7.9 bn 14.3 bn Revenues 19.0 bn 0.9 bn 3.8 bn 2.4 bn 5.2 bn EBIT* 1,353 m 30 m 217 m (400) m 171 m Civil Defence in % of external revenues A400M, CN235, C Eurocopter, ATR, EADS Socata, Sogerma Services, EFW Astrium, Launch Vehicles, CASA Espacio, Space Services, CILAS, Sodern Military Ac (Eurofighter,...), Missiles (MBDA,..), Defence Elect., EADS Telecom, EADS Services * pre goodwill and exceptionals ** Military aircraft included in DS division 3 2

3 Specific Industry Sector Issues Aerospace Business Cyclical Long-term Global USD based Financial standing of customers and budgetary constraints Financial High Liquidity and Flexibility requirements Long-term funding needs Long-term hedging needs Strict control of customer financing Regulatory Accounting Rules (IAS 39, Project financing & consolidation, R&D capitalisation) No tax harmonisation at the European level Financial Market Regulatory Framework (Sarbanes-Oxley, Basel 2) 4 Responding to Risk with... Treasury centralisation principles mandated by the Board Support and anticipate Financing, Hedging, Funding and Liquidity needs of Business Units Mitigate and smoothen the impact of business cycles Leverage group scale and optimise bank relationships Treasury Policies Hedging : systematic hedging of firm forex net exposure Counterparty risk : continuous monitoring and management of counterparty exposure Funding policy : optimise terms and conditions, market access and limit structural subordination Customer financing : significantly contained to preserve balance sheet strength Liquidity and investment : timely access to cash and liquid high grade investments and proprietary integrated systems 5 3

4 Mapping the Risk and Process Interfaces Process F Management Pensions Funding Risks Cash Management Cash Investment Contingent Liability Management Customer Financing Business Forecasts Credit Balance Sheet Counterpart F IR Liquidity Operational -Central Management (ISDA) -Group Policy -Counterparty limits -Back-Up Facility -Cash Pooling -Back-Up Facility -Rating Monitoring -1st pension fund -Pension fund projections -A.L. Management -Group policy -A.L. Management -F & IR Hedging gap -Group policy -Investment committee -Cash pooling -Central Asset Management -Conterparty / trading limits -A.L. Management -Back-up facility -Group policy -Central Monitoring -Counterparty limits -Credit pricing control -Group guidelines -Risk pricing model -Sell down policy -A.L. management -F & IR gap hedging -Monthly reporting -Operative planning -Strategic planning -A.L. Management 6 Foreign Exchange Management - Business Case How is the policy determined? Governance: Key principles of hedging policy are established by the Board of Directors and reflected in the Treasury Procedure Highlights: Subsidiaries must hedge the net firm exposure within Corridor Maximum time horizon of 8 years IAS 39 compliance Tender offers can be hedged on a selective basis Implemented centrally by EADS Treasury 7 4

5 Foreign Exchange Management - Business Case How is hedging organized? Role and means of EADS Treasury: Co-ordination with Business Units Execution of hedging decisions Sole interface to the market Ensure overall cost efficiency Constantly monitor market trends and developments Suggest hedging strategies 8 Foreign Exchange Management - Business Case Flexible dimensions of the hedging policy Time span mathematically puts volatility on our side (visibility vs opportunity) The Corridor provides room for cyclical uncertainty and occasional contract weakness The Corridor is not meant as a speculation instrument Expected exposure is not hedged Why? Accounting unfriendly Over-hedging risk: uncompetitive parity may weigh on future orders 9 5

6 Foreign Exchange Management - Business Case Providing long term visibility Over 50% of foreseeable exposure is hedged hedge book expected exposure firm exposure Corridor Close to 100% of firm exposure hedged 10 Foreign Exchange Management - Business Case Applying the policy in the «real world»: Value protection in spite of operational imperfections Implementation: a continuous but discreet market presence Active counterparty risk management Flow assessment and natural hedging EBIT protection: subject to accounting rules and revenue recognition Role of budget and commercial rates 11 6

7 BANK 1 BANK 1 BANK 1 OVERLAY BANK 2 BANK 2 BANK 2 OVERLAY OVERLAY BANK 3 BANK 3 Cash Management - Business Case Automatic Cash pooling EADS NV Branch OVERLAY France USD-GBP EUR Germany USD-GBP EUR USD-GBP EUR Country Automatic Cash pooling EUR Automatic USD-GBP Cash pooling EUR Automatic USD-GBP Cash pooling EUR USD-GBP A European cash management structure to: OVERLAY OVERLAY OVERLAY OVERLAY OVERLAY OVERLAY BANK 3 EADS France Other Subs. EADS GmbH Other Subs. EADS country Other Subs. Monitor and integrate Business Units liquidity at the European level Reduce Liquidity Risk Exposure at Group level Take advantage of various cash flow cycles within the Group Automated pooling between in-country and EADS NV accounts Local cash planning: Subsidiaries forecast their funding requirements on a periodical basis Subsidiaries monitor their day-to-day outgoing/incoming flows Automatic zero balancing: Group Treasury s local banks concentrate funds Group Treasury monitors end-of-day balances per currency Complete and homogeneous multibank reporting over 17 banks with JPMorgan 12 Cash Management - Results Financial Improvements Integrate Business Units into a unified EADS brand /group Reinforce EADS cash fire power and synergies Higher volumes due to fewer banks, trigger economies of scale Eliminate idle cash at Business Unit level Compensate debit and credit balances at EADS NV - less overdrafts & loss of interest - Savings due to processing improvements Processing/Accounting Improvements Standardise cash pooling/payments procedures groupwide Standardise & automate banking information statements at EADS NV level Optimize balance sheet Book cross-border & inter company payments via current accounts 13 7

8 Conservative Liquidity and Investment Policy - Business Case Investment policy Maintain at least Eur 3bn cash at all times Invest in highly rated credit instruments Access to total cash within few days Asset & Liabilities Management considerations Implementation Investment Committee Selection of liquidity funds and set up of trading limits Front to back analysis of investment decision Investment parameters in the risk, accounting and back-office systems Integrate the operating model to other partners (eg. Global Custodian) Define funds reporting requirements to enable risk monitoring 14 Liquidity Management - Results Prudence : high credit rating, trading limits, diversification between different liquidity funds, diversification within each fund Daily access to cash (largest funds settle on T+0) Partnership approach reinforced during the selection process with fund providers Clear operating model reviewed to ensure maximum of control and efficiency Leverage of cash pooling structure and optimization of cash invested overnight Outsourcing of low risk investments Reduced number of banks to improve returns and reduce management fees 15 8

9 EADS: strict control of customer financing A discretionary tool Granted on a case-by-case basis Pricing in line with market conditions Active sell-down policy used conservatively Outstanding gross customer financing exposure (US$bn) 7 (excl. stipulated loss values) 6 0,9 0,88 5 0,51 4 5,36 5,7 0,87 0,82 0,64 0,73 4,82 3 3,94 3,54 3,2 3, % Airbus 50% ATR Almost 100% of customer financing is secured on aircraft EADS applies systematic discount to independent appraisals of collateral Net exposure is fully provisioned Exposure spread over 40+ airlines and 150+ aircrafts Includes on and off balance sheet Total gross customer financing exposure 4.2 bn as of Dec Provision 1.6 bn Estimated Collateral 2.6 bn 16 Wrap Up EADS has successfully weathered the perfect storm Through industrial discipline And a conservative financial policy With an effective risk management While assembling the building blocks for performance on a global scale Steady investment for future growth Adjusting the industrial tool to evolving market requirements While maintaining one of the strongest balance sheets of the Aerospace industry 17 9