Beverage companies deal with a portfolio of commodities, such as agri-cultural commodities, energy and packaging materials like aluminium, glass and cartons. Managing these risks should be a key activity. Learn how KYOS can help to translate your procurement experience into clear and understandable financial risk reports.
Aluminium price risk is a good example of the risks that beverage companies are facing. By linking the aluminium component of cans to the LME, packaging companies pass on price risks to the beverage industry. Our beverage clients use the portfolio system to calculate the exact underlying aluminium position. This enables procurement and finance teams to manage the company’s expected costs and price risks more effectively.
With the KYOS system, each user is able to define a category specific portfolio of commodities. Spreadsheets are no longer needed, because all category buyers use the same integrated commodity & risk management system. The Chief Procurement Officer has an up-to-date helicopter overview across all commodities, packaging materials or ingredients. Moreover, the system secures compliance and consistency for all categories.
Managing commodity risks is crucial for industrial companies to survive in a competitive environment. Managing commodity price risk in Excel can easily lead to mistakes or even fraud. ERP systems, such as SAP, do not offer a good solution either. They look backwards instead of forwards and cannot perform the required risk management calculations. In addition, they can be extremely expensive to customize. Unlike ERP systems, the KYOS portfolio & risk management system is tailored to managing commodity price risks. It builds on years of experience in managing commodity contracts and price volatility.
For example, suppliers of glass often link bottle prices to energy (oil, natural gas) and can producers link the price to aluminium. In the KYOS portfolio & risk management system users are able to compare several of such commodity price formulas in a split second. Calculating the best applicable formula takes less time in the KYOS system than with Excel and hence saves time and cost.
The higher and more frequent market prices move up or down the higher its volatility. Volatility is often expressed in a percentage and can be calculated for e.g. interest rates, currencies (FX) and commodities. A highly volatile market price is not per definition a bad situation but you probably feel more comfortable with less volatile costs. For example aluminium has shown an average volatility above 20% in recent 5 years. This is more than double the volatility of EURUSD in the same period. Calculating the volatility should be an integrated part of your beverage risk management strategy.
You can store in the portfolio & risk management system commodity budgets, consumption, inventory and contracts. Furthermore, the system combines the automated market price analytics with your physical positions. It will provide you not only with clear insight in the current cash-flow and potential cash-flow variance, but also versus budget expectations.
You will have a better insight in contracted and/or open positions, cash-flows and the associated risks. This is a clear advantage for procurement, sales, finance and treasury. KYOS has extensive experience with companies specifically on beverage risk management.
The KYOS system can capture a wide range of contracts: for example forwards, futures, swaps, fixed price or indexed, physical or financial contracts, inventories, transport, etc. The system provides detailed insights in the historical cash-flows and P&L, the future Mark-to-Market, the average purchase price and many more useful statistics. Furthermore, you can slice and dice to any level of detail, per contract, per book, per counterparty and so on. Even options and accumulators are part of the deal-capturing and risk calculation functions. You can analyze which type of option or accumulator provides the best guarantee to meet your budget. Thanks to our option and accumulator pricing tools, you will always know the fair price of these complex products.
Finding a balance between fixed and floating prices is for sure part of your hedging strategy. Fixed prices give cash-flow stability, but offer no possibility to profit from favorable price movements. An acceptable balance of fixed and floating prices depends on multiple factors. In short, the KYOS portfolio & risk management system will help you to find your “risk and reward” optimum by simulating multiple cash-flow scenarios. It will provide you with clear insight in the potential cash-flows given any combination of fixed and floating prices.
Start managing your cash-flow variations and subsequently lower your required working capital!
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