Fuelled by Forecasting: Q&A with Matthijs Schot of Maersk

In addition to his financial planning and analysis (FP&A) duties for the $47-billion, 89,000-employee multinational, Schot serves on the taskforce of the
2015 AFP FP&A Leadership Summit
, to be held May 19-20, in Amsterdam.

Q (Apfel): Tell me a little bit about your job responsibilities.

A (Schot)
: I work in the corporate FP&A group where we are responsible for the rolling forecast and the capital allocation on the group level. We also do quarterly review sessions with the business unit chief financial officers (CFOs) to discuss their business unit performance and their latest five quarter rolling forecast, which we consolidate to get a group forecast.

What do you see as your biggest challenge right now in 2015?

Well, I think our group’s biggest challenge is also our biggest opportunity, it’s the volatility in our business environment’s macroeconomics like oil prices and gross domestic product (GDP) growth. We are one of the biggest players in global trade and also a mid-sized player in the upstream oil market with Maersk Oil and Maersk Drilling. The volatility in both GDP growth and oil prices give us challenges in forecasting and allocating resources, but with our rolling forecast we should be able to deliver better returns than other businesses that still work with annual budgets which cannot, due to the lack of agility, adapt to changes in the business environment.

Did your company foresee such a plummet in oil prices? It’s astounding how low prices have fallen, and I wonder what companies that are involved in oil, what they’re doing to cope with this?

I don’t have an official view on that but I don’t think a lot of people in the industry had a high probability assigned to such a dramatic scenario. We run various risk scenarios for our group including volatility in the oil prices, but with a low probability for such a dramatic drop as we have seen materialise. We specialise in ultra-deep water offshore projects, which have a very long lead time; this means there is some impact but most projects will still make good business sense in the long run.

Of course this doesn’t take away that we as a business need to react to the changes in the external environment. We are also a supplier of drilling rigs and offshore supply vessels where we are dependent on third-party contracts – there also we have seen impact on rates and contracts but at the same time it’s important to see the long-term business case. Also in other business units we benefit from a lower oil price as we consume bunker fuel – this works as a natural hedge offsetting some of the downside in the oil-related businesses.

Could you explain a little bit more just how do they help them and how having a rolling forecast helps mitigate some of these challenges for you?

We do these quarterly rolling forecasts. So, every quarter, we sit together with the business units, look at their business unit performance, their last four quarters, and we look at the next four quarters forecast. This allows us throughout the year to make adjustments to how we allocate capital, or which projects we will or will not do – or even add new projects to take advantage of medium-term opportunities. If you were stuck into a fixed yearly budget you would not have this flexibility, nor would you optimise your capital as generally people will build buffers in their budget and end up spending budget monies in the end of the year to ensure their budget for next year is not cut if they don’t spend everything.

We practice something like dynamic capital allocation. If a business unit asked for 10 projects and all 10 meet certain criteria, we will agree to those 10 projects. But if the business circumstances throughout the year change, we might not fund all those projects and move some of the monies to other business units projects instead to take advantage of opportunities there. So, it gives us much more agility throughout the year to make changes to our business and therefore deliver better value to our customers and our shareholders.

What do you hope to gain from attending the FP&A Summit? And also, why did you decide to be in the taskforce to help plan it? That’s a big undertaking.

FP&A interests me so that is why I volunteered for the task force. Being part of the FP&A summit task force I hope to get even more information out of the whole experience. I hope to get ideas on how to increase the value creation in FP&A, and get insight into how other companies do their financial planning and learn from their best practices. One specific topic of interest of mine is the latest trends in FP&A and what other companies are doing in that area and how they use it to create value or get an advantage.

For more information on the FP&A Leadership Summit, go to www.AFPonline.org/leadership.