relation to strategy and business model DIRF seminar, Hotel Skt. Petri, Aug 2010 Morten Mosegaard, Head of Corporate Solutions

Transcription

1 Meaningful reporting of risk in relation to strategy and business model DIRF seminar, Hotel Skt. Petri, Aug 2010 Morten Mosegaard, Head of Corporate Solutions

2 The presenter The cv of an annual report heavy user CV Head of Corporate Solutions, Danske Markets Analyst/Senior Analyst, Risk Advisory, Danske Markets Phd in Finance (Uni of Southern Denmark/UTS Sydney) Morten Mosegaard Head of Corporate Solutions morten.mosegaard@dan skebank.dk Strategy Consultant, Accenture University (Cand. Scient.Oecon) 2

3 Background What s the angle? Things to consider Who s interested? Key stakeholders Motives What do they want to know (and why?) Upside or downside risks? Relevance Not just the risk but how to adress it In the context of today Trends to acknowledge Examples 3

4 Financial risks The financial crisis moved some risks higher on the agenda Before FX Interest rate risk Commodity risk Liquidity risk Leverage risk /gearing Counterparty risk/credit risk After 1. Liquidity risk 2. Counterparty risk/credit risk 3. Leverage risk /gearing 4. Commodity risk 5. FX 6. Interest rate risk Systemic risk became the new buzzword Risks became harder to accurately measure and report 4

5 Liquidity risks When cash is king Plenty of liquidity... SEK (mia) Liquidity Commited facilities Cash Yet more expensive cash brought in... Several long term bond issues in an expensive market 700m 7% rmargin - 5 maturity Subsequent issue at 6.75% in margin The ultimate reporting of access to liquidity tangible demonstrations! 5

6 Capital structure Leverage became unfashionable in 2008 Geared companies where hurt more from the crisis -1 Drop i nshareprice e Financial gearing (Net Debt/EBITDA) 0% % VESTAS WIND SYSTEMS -20% KONE SECURITAS TELIASONERA -30% STATOILHYDRO ATLAS COPCO ALFA LAVALSKF -40% FORTUM SVENSKA CELLULOSA ELECTROLUX -50% SANDVIK DSV NORSK HYDROA P MOLLER - MAERSKSCANIA OUTOKUMPU ORKLA -60% CARLSBERG NESTE OIL FLSMIDTH & CO BOLIDEN UPM-KYMMENE -70% TELENOR VOLVO STORA ENSO -80% METSO SCHIBSTED ENIRO NORSKE SKOGINDUSTRIER -90% M-REAL -100% Before: High leverage higher ROE Easy access to cheap capital After: High leverage = reduced flexibility More difficult access to capital 6

7 Capital structure Strong and clear communication about leverage targets are important for creditors and shareholders alike Example (DSV): Capital Structure Target net debt/ebitda Use of free cash flow 1. Repayment 2. Acquisitions (if available) 3. Share buy-backs (to adjust gearing if no acquisitions) 4. Dividends (Target: Constant dividend per share) 7

8 Quantitative risk management Showing off does it pay off? 8

9 Quantitative risk management Showing off does it pay off (cont)? 9

10 Business risks Devil is in the details Source: Esprit Annual Report 2007/2008 DOES THIS FIX THE PROBLEM OR HIDE IT? 10

11 Business risks Commodities gained some attention in the last few years Volatilities for selected commodities 11

12 Black swans A few words about risk matrices and what to say about the unexpected 12

13 Conclusion My philosophy regarding risk communication Be relevant the crowd does not watch out for black swans, it looks for (recently) well known signs of trouble Be action oriented knowing the risk is good, but I d much rather now what you are going to do about it Be clear quantitatively advanced methods are rather uninformative, although it may show that the risk is taken seriously Be consistent don t just say what you will do, show it! 13

14 Disclaimer This presentation has been prepared by Danske Markets for information purposes only. It may support nearterm trading strategies that differ at times from Danske Bank s ratings based on other research. The publication is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. The Equity and Corporate Bonds analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for retail customers in the UK or any person in the US. Danske Markets is a division of Danske Bank A/S. Danske Bank A/S is authorized by the Danish Financial Supervisory Authority and is subject to provisions of relevant regulators in all other jurisdictions where Danske Bank A/S conducts operations. Moreover Danske Bank A/S is subject to limited regulation by the Financial Services Authority (UK). Details on the extent of our regulation by the Financial Services Authority are available from us on request. Copyright (C) Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission. 14