Conagra, Ericsson, Henkel use ERM to seek out opportunities
Treasurers are using enterprise risk management (ERM) – aka ‘total’ risk management – as a tool to seek out additional revenue and acquisition opportunities. Graham Buck reports.
Enterprise risk management (ERM) – aka ‘total’ risk management – is becoming a tool to seek out additional revenue and acquisition opportunities, treasurers from Conagra, Ericsson and Henkel told a panel discussion the International Treasury Management conference in Geneva. They agreed that for ERM to “take off” it needs to be part of the strategic objectives of the business.
Johan Nystedt, VP treasurer and chief risk officer for Chicago-based food producer Conagra Brands said that the company was considering its appetite for risk and ready to take on more if the returns were attractive enough.
“Is ERM part of treasury? In our case, absolutely,” said Nystedt. “The company has recently seen a major push to increase its involvement in risk management and risk officer is one of my titles.”
Like many companies, Conagra has contingency planning and business continuity in place in the event of a disaster and is now developing ERM on the strategic side. “There are 13 major risks that we track, with a plan for each,” Nystedt said. “Half of them relate to strategy, such as share repurchases.”
He noted that the food sector has seen “transformational change” in the past couple of years. “Amazon is now engaged in becoming a grocer and several iconic brands have been acquired.
“Conagra seeks to stay on the cutting edge, so has to challenge market practices and be a disruptor itself. Risk taking is a good thing – without it you won’t see returns.
“So we’ve embraced ERM. Certain risks, such as FX and commodities hedging, can be mitigated using the banks and we can instead focus on new acquisitions and other deals.”
Dr Michael Reuter is head of corporate treasury for Dusseldorf-based consumer and industrial group Henkel. He said that his company doesn’t have a chief risk officer as this role is part of the CFO’s remit. Reuter added that for his company asking “what is the biggest risk?” is less of an issue thanks to the diversity of its product portfolio, which extends across both consumer and industrial items. Geopolitical risk and the growing possibility of trade wars is currently top of its risk agenda.
“As a German company, we have to provide what’s called a ‘risk and chance report’,” Reuter said. “So when we talk about risk we also assess the potential for taking advantage of certain situations.”
“Geopolitical risk is also a concern” for Magnus Attoff, head of financial risk management and internal risk at Swedish telecoms group Ericsson, which employs 95,000 people and operates in around 180 countries “They include a number of ‘difficult’ ones’” he suggested.
“It’s already been mentioned that the possibility of an emerging markets crisis in the next couple of years is growing increasingly likely,” Attoff noted. “What will happen if the off-shore liquidity of US companies is repatriated back home in the wake of the US tax reform?”
He added that when opportunity presents itself after a change in market conditions, it’s worth amending the financial risk delegated to treasury if possible benefits are identified.