Case Study: Coca-Cola HBC Treasury Takes Control of Commodity Risk Management
Coca-Cola Hellenic Bottling Company (Coca-Cola HBC) is
the world’s second largest bottler of the Coca-Cola Company’s products and the
largest in Europe. Net sales revenue for fiscal 2012 was €6.8bn. Coca-Cola HBC is headquartered in Zug,
Switzerland, and has a premium listing on the London Stock Exchange and a
secondary listing on the Athens Exchange. It serves approximately 581m
people in 28 countries.
The company decided to concentrate its
commodity market risk management within the treasury department, in
response to high levels of profit and loss (P/L) volatility and the
relatively high credit risk with its suppliers. The ensuing project
involved change management for transfer of the company’s commodity risk
hedging to treasury, the selection and implementation of a new technology
solution and putting in place a reporting environment that would provide the
necessary levels of understanding to support decision taking in line with
the organisation’s risk appetite.
The project described below won
the risk management award in the 2013 gtnews awards for global
corporate treasury and finance.
The Commodity Management
Coca-Cola HBC’s business is exposed to commodity
price volatility in aluminium, oil, plastics and sugar.
past, commodity hedging was not performed by group treasury. This
resulted in a different approach in areas such as the implementation of
counterparty limits, controls and reporting and so forth, the management of
different foreign exchanges (FX) and the rates from commodities transactions.
In addition hedging was carried out through the various suppliers, an
approach that had a number of shortcomings:
Our management team analysed the situation, and decided to
initiate a project towards achieving the following high level results:
The project’s most important initial objective was to select and
implement a technology solution that would:
The Solution Selection Project
The Coca-Cola HBC solution selection project ran from two ato three
months, as the team identified and evaluated a range of potential vendor
solutions. This process took a little longer than I had originally
anticipated, but this time was well spent in achieving the best solution
for the urgent business issues we were confronting in commodity risk
The selection team consisted of several end users
and representatives of other significant stakeholders such as financial
reporting, IT, back office and front office. A project manager and an IT
specialist were additionally appointed as specialists to support this team’s
researches, operations and decisions.
The selection and
implementation projects were overseen by a project monitoring
committee. The selection team evaluated five contrasting solutions,
ultimately selecting Reval’s software-as-a-service (SaaS) treasury and
risk management (TRM) solution. The primary factor which influenced this
decision was the team’s feeling that this system was the most closely
attuned to the practical realities of Coca-Cola HBC treasury’s operations
in the active hedging of commodity exposures in the marketplace.
The Implementation Project
project ran for just over six months, from June 2012 to January 2013. It
has successfully delivered its primary objectives within the planned
budget and time parameters. The three major strategic objectives of the
project reflected a broad range of Coca-Cola HBC’s management priorities:
Operational Benefits of
the New Solution
Coca-Cola HBC treasury now enjoys a range
of benefits from the live operations of TRM. The most valuable
I have identified effective change management as
being a critical part of transforming and improving the way we work together
at Coca-Cola HBC. Change management has been central to achieving the
successful separation of the market risk component from the conversion
component in commodity management. A new process has been established for
the review of the contracts with the suppliers. The team has built a number
of controls and authorisations to ensure the validity of the exposure
reporting process. It also devotes much time to identifying the optimal
structure of the transactions in order to reduce the tax risks and build a
legal framework through sound documentation.
There are also
numerous changes needed in several areas, from back office to tax and
financial reporting. In front office the team used the same controls as are
used for FX for the commodity trade execution; but has also had to work on
the position monitoring and the reports that we produce. On the reporting,
our main challenge was the fact that the hedges – previously focusing only
on market risk – were settling before the delivery of the physical product
to our factories. For the strategy, we spend much time before settling on
a specific approach. We also updated our treasury policy, which is
included in the procurement policy as well.
There are several recommendations that I
would make to others who are considering initiating a project similar to
Coca-Cola HBC’s commodity risk management exercise.
important to take a clear look at the big picture, so that the full
spectrum of business issues and potential solutions are properly identified
and considered before detailed work begins. This includes ensuring that
all the relevant people across the organisation are properly involved, so
that they contribute to the design of the project, and will assume a share
of the ownership of the solution. In our case procurement, financial
reporting, back office, cash management, IT, tax and legal were all
involved. We also had involvement from the countries in which Coca-Cola HBC
Ensure that everyone involved understands the
relevant details and objectives of the project, and maintain this level of
understanding through internal reviews. Education in the essential details
for all concerned parties is vital. The project should establish and
operate appropriate internal controls, and define an agreed set of KPIs so
that progress and results can be effectively managed.
The big underlying idea of this
project was to try to improve Coca-Cola HBC’s risk management culture and
practice. As required, we have now successfully isolated the management of
commodity market risk within treasury, so it is now performed by specialists
who are experts on managing financial risks. The information is
communicated to the senior managers, and the hedging strategy is customised
to their risk appetite.
The team now enjoys the multiple benefits of
reduced P/L volatility, better pricing, reduced supplier-based risk,
enhanced control, transparency and reporting, and an improved environment
for effective commodity risk decision-taking.