Controlling in the Wood Products Industry

Transkript

1 Controlling in the Wood Products Industry SS 215 Albert Sickl

2 Take-aways from Module 1 FROM BEAN COUNTER TO BUSINESS PARTNER Two basic responsibilities Management Service responsibility (before the fact or anticipatory) Financial Reporting & Internal Control responsibility (after the fact or reactive) Four types of controller roles Involved controller Independent controller Split controller Strong controller Service function & Leadership & Interpersonal relationship with management expected from (strong) Controllers Managers have to accept and cooperate with the Controller 2

3 Basic Tools Financial Concepts: Efficiency in value creation (ROCE > WACC) Strength to cope with uncertainty (D/E, Equity ratio) Ability to reward stakeholders (Cash) MUST: Ability to cope with all three dimensions 3

4 Basic Tools The magic triangle regarding the financial body: Profit & Loss Statement ( the muscles) KPIs Balance Sheet ( the bones) Cash Flow ( the blood) 4

5 Basic Tools Income Statement or P&L One of the major financial statements beside Balance Sheet and Cash Flow Statement. Muscles of the financial body. Shows the profitability of a company during a PERIODE of time. It does not show cash receipts (money you receive) nor cash disbursements (money you pay out). The profit-&loss statement measures profitability, not cash flow! Prepared monthly, quarterly and / or annually. Two formats: Total Expenditure Format (Gesamtkostenverfahren) Cost of Sales Format (Umsatzkostenverfahren) 5

6 Basic Tools Income Statement or P&L Total Expenditure Format (Gesamtkostenverfahren) 1. Umsatzerlöse 2. Erhöhung oder Verminderung des Bestands an fertigen und unfertigen Erzeugnissen 3. andere aktivierte Eigenleistungen 4. sonstige betriebliche Erträge 5. Materialaufwand: a) Aufwendungen für Roh-, Hilfs- und Betriebsstoffe und für bezogene Waren b) Aufwendungen für bezogene Leistungen 6. Personalaufwand: a) Löhne und Gehälter b) soziale Abgaben und Aufwendungen für Altersversorgung und für Unterstützung, davon für Altersversorgung 7. Abschreibungen: a) auf immaterielle Vermögensgegenstände des Anlagevermögens und Sachanlagen b) auf Vermögensgegenstände des Umlaufvermögens, soweit diese die in der Kapitalgesellschaft üblichen Abschreibungen überschreiten 8. sonstige betriebliche Aufwendungen BETRIEBSERFOLG 6

7 Basic Tools Income Statement or P&L Cost of Sales Format (Umsatzkostenverfahren) 1. Umsatzerlöse 2. Herstellungskosten der zur Erzielung der Umsatzerlöse erbrachten Leistungen 3. Bruttoergebnis vom Umsatz 4. Vertriebskosten 5. allgemeine Verwaltungskosten 6. sonstige betriebliche Erträge 7. sonstige betriebliche Aufwendungen BETRIEBSERFOLG 8. Erträge aus Beteiligungen, davon aus verbundenen Unternehmen 9. Erträge aus anderen Wertpapieren und Ausleihungen des Finanzanlagevermögens, davon aus verbundenen Unternehmen 1. sonstige Zinsen und ähnliche Erträge, davon aus verbundenen Unternehmen 11. Abschreibungen auf Finanzanlagen und auf Wertpapiere des Umlaufvermögens 12. Zinsen und ähnliche Aufwendungen, davon an verbundene Unternehmen 13. Ergebnis der gewöhnlichen Geschäftstätigkeit 14. außerordentliche Erträge 15. außerordentliche Aufwendungen 16. außerordentliches Ergebnis 17. Steuern vom Einkommen und vom Ertrag 18. sonstige Steuern 19. Jahresüberschuß/Jahresfehlbetrag 7

8 Basic Tools Income Statement or P&L Total Expenditure Format (Gesamtkostenverfahren) Shows the total performance and all costs for a selected period with change in inventories Expenses are shown according to their origin (material, personnel, maintenance, etc.) Cost of Sales Format (Umsatzkostenverfahren) Shows the cost of goods sold (COGS) for a selected period Expenses are shown according to functions (production, general & administration, sales) Regarding 1) Financial result, 2) extraordinary items and 3) taxes, both methods have the same structure and results. 8

9 Basic Tools Income Statement or P&L Contribution margin: The contribution margin is the amount that remains of our sales after deducting all variable costs. It is used to cover fixed costs and eventually to make profits. Gross Sales - Sales deductions (rebates, cash discounts,..) Net sales - Freight costs, Commissions,.. - Variable Costs. Contribution margin Can also be expressed as %-age of sales, i.e. a contribution margin of 15% indicates that out of 1Euro sales, 15 cents remain for coverage of fixed costs Contribution margin can also be shown in several steps by allocating fixed costs to articles, article groups, business areas, 9

10 Basic Tools Income Statement or P&L Practical Example VBW: Opern- und Musicalproduktionen in drei Häusern: Theater a.d. Wien (TAW), Raimund Theater (RAI), Ronacher (RON) Besucher: RON: 15.; RAI 25.; TAW 8. Kosten Intendanz: Musical: 6. ; Oper: 5. Leading Team Kosten: RON: 3T ; RAI: 35T ; TAW: 5T Produktionsausstattung: RON: Bühne (45T ); Ton (5T ); Licht (5T ); Kostüm (2T ) RAI: Bühne (5T ); Ton (5T ); Licht (5T ); Kostüm (2T ) TAW: Bühne (6T ); Ton (5T ); Licht (5T ); Kostüm (3T ) Personalkosten Haustechnik: RON: 25 Personen; RTH: 3 Personen; TAW: 2 Personen (durchschnittliche Kosten: 6. / Person) Orchester: RON: 1 Personen; RAI: 15 Personen; TAW: 2 Personen (Durchschnittskosten pro Person: 6. ) 1

11 Basic Tools Income Statement or P&L Practical Example VBW: Opern- und Musicalproduktionen in drei Häusern: Theater a.d. Wien (TAW), Raimund Theater (RAI), Ronacher (RON) Technik (produktionsbezogene Überstunden): RON: 1.h; RAI: 12.h; TAW: 6.h (durchschnittliche Kosten: 3 /h) Marketing (produktionsbezogen): RON: 3T ; RTH: 45T ; TAW: 6T Hausbezogener Materialaufwand: RON: 4T ; RTH: 35T ; TAW: 3T Durchschnittlicher Ticketpreis: RON: 45 ; RAI: 5 ; TAW 6 Personalkosten FM Haus: RON: 25 Personen; RTH: 3 Personen; TAW: 2 Personen (durchschnittliche Kosten: 4. / Person) Cast: RON: 2.75T ; RAI: 3.125T ; TAW: 2.T Overhead: Sonstiger Aufwand (Material, bezogene Leistungen): 2.5T ; Zentrale Technik: 1.T ; Zentrales FM: 7T ; Generaldirektion: 1.5T 11

12 Basic Tools Income Statement or P&L Musical Opera Ronacher Raimund Theater a.d. Wien TOTAL Besucher Gross Sales Leading Team Ausstattung Cast Orchester Technik Produktion Marketing Produktion DB I (Produktion) Erträge Haus Materialaufwand Technik Haus Facility Management Haus DB II (Haus) Intendanz DB III (Sparte) Sonstiger Aufwand Technik zentral Facility Management zentral Generaldirektion DB IV (Betriebserfolg) Finanzerfolg Profit / Loss

13 Basic Tools Income Statement or P&L Practical example Stora Enso: 1) How big is the contribution margin? 2) How big is the margin %-age? 1 CUR Sales, sawngoods Ext Sales, sawngoods Int Prod unit Sales, sawngoods Int Sales unit Sales, distribution Ext Sales, distribution Int End Product Sales Sales, by-products Ext Sales, by-products Int Sales, logs Ext Sales, logs Int Wood Sales Energy Sales FX on Sales and Operative Receivables Sales of Stora Enso Products Transportation & Freight Sales Commission Income Maintenance Materials & Services Income Other Sales FX cashflow hedge derivatives Sales of Stora Enso Services and other Sales non Stora Enso products SALES Transportation & Freight Costs, sawn Transportation & Freight Costs, by-products Transportation & Freight Costs, other Transportation & Commissions Costs Commission costs, sawn Commission costs, other Total Commission costs SALES AT MILL PRICE Change in Finished Goods Inventory & WIP Change in net value of biological assets Other Operating Income, other Ext Other Operating Income, other Int Wood costs By-product purchases Total Energy costs TOT Supplied sawn goods Total Other purchases, production Total Other purchases, distribution Total End Product Purchases Chemicals & fillers costs Packaging material Other Operating Variable Costs Total variable costs, CUR

14 Basic Tools Income Statement or P&L Break-Even Analysis: The break-even point defines the sales volume which is needed to cover all costs, i.e. neither produces a profit nor a loss. Break Even Point means: Profit = Fixed costs = Total contribution margin Revenues = Total costs Profitability increase by: Increase of Sales Improvement of Contribution Margin (price increase, reduction of variable costs, improved product mix) Reduction of Fixed costs Capacity Reduction 14

15 Basic Tools Income Statement or P&L Break-Even Analysis: Break Even Point (Vol) = Fixed costs / Contribution margin per piece Break Even Point (Value) = Fixed costs / Contribution margin %-age Safety margin [value] = (Planned sales-minimum sales) / Planned sales * 1 Safety margin [volume] = (Planned volume-minimum volume) / Planned volume * 1 Targeted Turnover = (Fixed costs + Profit) / Contribution margin %-age 15

16 Basic Tools Income Statement or P&L Example 2: A company has the following planned parameters: Sales volume: 2. bicycle shoes Production volume: 2.3 shoes Variable costs/shoe: 12EUR Net sales / shoe: 18EUR Fixed costs: 11.EUR 1) How big is the minimum sales value? 2) How big is the minimum sales volume? 3) What are the safety margins? 4) Return of Sales? 5)The owner's target is a profit of 9TEUR. Which turnover is necessary? 6) How much additional sales are necessary if a new sales rep is employed for 25.EUR p.a.? 7) The head of sales suggests a 5% price decrease. How many % more sales is the minimum requirement? 16

17 Basic Tools Income Statement or P&L Plan P&L Example 3: A company has the following planned parameters: Production volume: 8.1 aero-helmets Sales volume: 8. aero-helmets Net sales / helmet: 24EUR Production time / helmet: 15min Production wages / hour: 13EUR Overhead production costs: 1% Production materials / helmet: 28EUR Overhead production materials / helmet: 3EUR Basis for overhead material costs are production materials and for overhead production costs the production wages. Fixed costs: Personnel 15.EUR Other fixed costs 1.EUR Depreciation 19.EUR Interest costs 6.EUR 1)Establish a plan P&L (Gesamtkostenverfahren) 2)Calculate the ROS 17

18 Basic Tools Balance Sheet (B/S) One of the major financial statements beside Income Statement and Cash Flow Statement. Bones of the financial body. Shows the assets and liabilities of a company at a single POINT of time. Snapshot of a company's financial condition. Prepared monthly, quarterly and / or annually. A standard B/S has three parts: Assets Liabilities Equity 18

19 Basic Tools Balance Sheet (B/S) ASSETS: The left-hand side of a B/S shows how a company uses the capital given by owners (equity) or external sources (debt). The assets represent things of value that a company owns and has in its possession or something that will be received. Fixed assets are expected to remain in the use of the company for a longer period of time (> 1 year). Current assets are not expected to remain long in the use of the company (consumed within 1 year). 19

20 Basic Tools Balance Sheet (B/S) 2

21 Basic Tools Balance Sheet (B/S) EQUITY & LIABILITIES: The right-hand side of a B/S shows where the capital of a company comes from or in other words how the assets are financed (equity, debt). Liabilities are those funds that a company owes to other external sources. They are used to finance operations and pay for expansions. Equity represents retained earnings and funds contributed by the company's shareholders. 21

22 Basic Tools Balance Sheet (B/S) 22

23 Basic Tools Balance Sheet (B/S) The fundamental B/S equation: ASSETS = EQUITY + LIABILITIES The equation HAS to be always in balance! A reasonable mix of equity and liabilities is a must for a financially healthy company. Example: Components of the Balance Sheet 23

24 Basic Tools Balance Sheet (B/S) Working Capital: Delta between current assets and current liabilities. Liquidity indicator: Shows the ability of a company to cover current liabilities out of its current assets. Management approach: Inventories + Accounts receivables - Accounts payables Working Capital Lean working capital management means among others: decreased costs (inventory space, ) reduced bad debts increased cash flow 24

25 Basic Tools Balance Sheet (B/S) Working Capital / Inventories: Trade-off Model, => while focusing on one item, e.g. Lead Time, another item might be impacted as a result of the previous change Lead Time Capacity Inventory Information Demand 25

26 Basic Tools Balance Sheet (B/S) Working Capital / Inventories: 26

27 Basic Tools Balance Sheet (B/S) Working Capital / Accounts receivables: A tight receivables management is more than ever important to prevent revenue leakage and bad debts to occur! Sales is interested in selling (and not in administration of outstanding receivables ). Payment terms need to be managed efficiently and reviewed periodically. Cash discounts are expensive tools and need to be handled restrictively. Example: Effective cash discount rate = Cash discount rate * 36 / (Term for payment Cash discount period) 27

28 Basic Tools Balance Sheet (B/S) Working Capital / Accounts receivables: 28

29 Basic Tools Cash Flow (CF) One of the major financial statements beside Income Statement and Balance Sheet. Blood of the financial body. Shows the flow of cash in and cash out of the business. It reflects a company's liquidity during a PERIODE of time. Prepared monthly, quarterly and / or annually. A standard Cash Flow statement has three parts: CF from operating activities CF from investing activities CF from financing activities 29

30 Basic Tools Cash Flow (CF) 3

31 Basic Tools Cash Flow (CF) Jahresüberschuss/-fehlbetrag nach Steuern + Abschreibungen auf das Anlagevermögen - Zuschreibungen zum Anlagevermögen +/- Gewinn (-) / Verlust (+) aus dem Abgang von Anlagevermögen +/- Zunahme (+) / Abnahme (-) lfr Rückstellungen = Cash Flow aus dem Ergebnis (cash earnings) +/- Zunahme (-) / Abnahme (+) der Vorräte +/- Zunahme (-) / Abnahme (+) der Forderungen LuL +/- Zunahme (-) / Abnahme (+) sonstiger Aktiva und ARA +/- Zunahme (+) / Abnahme (-) der kfr Rückstellungen +/- Zunahme (+) / Abnahme (-) der Verbindlichkeiten LuL +/- Zunahme (+) / Abnahme (-) sonstiger Passiva und PRA = Cash Flow Operating Activities - Investitionen - Aktivierte Eigenleistungen + Buchwert abgegangener Anlagen +/- Gewinn (+) / Verluste (-) aus dem Abgang von Anlagevermögen +/- Erhöhung (-) / Verminderung (+) der Finanzdarlehen an verbundene Unternehmen = Cash Flow Investing Activities + Einzahlungen von den Gesellschaftern - Auszahlungen an die Gesellschafter +/- Erhöhung (+) / Tilgung (-) von Finanzkrediten und Anleihen = Cash Flow Financing Activities Veränderung des Finanzmittelbestandes 31

32 Basic Tools Cash Flow (CF) Cash is King! A lot of capital is usually tied up in receivables and inventory. Importance to optimize working capital level becomes more evident than in the past. Longer term, companies need to create a culture in which everyone takes responsibility for the balance sheet! There are six common mistakes that companies make in managing cash: 1. Don't manage to the income statement. 2. Don't reward the sales force for growth alone. 3. Don't overemphasize production quality. 4. Don t tie receivables to payables. 5. Don t manage by current and quick ratios. 6. Don t benchmark competitors. 32

33 Basic Tools Cash Flow (CF) A CF-statement is tied to the P&L and B/S via net earnings and depreciation (P&L) on the one side and via working capital, fixed asset investments, etc. (B/S) on the other side. P&L: Sales +/- Change in inv - Variable costs - Fixed costs - Depreciation = Operating Profit B/S: Fixed Assets Equity Inventories Accruals Trade Receivables Trade payables CF: Operating Profit + Depreciation +/- Change in inventories +/- Change in Receivables +/- Change in Payables 33

34 Basic Tools Key Performance Indicators Key performance indicators (KPIs) are high-level snapshots of a business based on specific predefined measures. KPIs should be: Specific Measurable Acceptable Realistic Timely Should reflect the critical success-factors of a company variations between different industries possible. 34

35 Basic Tools Key Performance Indicators Key performance indicators (KPIs) in the wood-products industry (example Stora Enso): KPIs connected to the P&L: Return on Sales (ROS) = Operating Profit / Sales *1 Return on Capital Employed (ROCE) = Operating Profit / Operating capital *1 Personnel intensity = Personnel costs / Sales *1 Maintenance intensity = Maintenance costs / Sales *1 Raw material intensity = Raw material costs / Sales * 1 35

36 Basic Tools Key Performance Indicators Key performance indicators (KPIs) in the wood-products industry (example Stora Enso): KPIs connected to the B/S: Inventory turnover ratio = Sales or COGS / (Average) Inventory Inventory turnover days = 365/ Inventory turnover ratio (also called DIOH) Receivables turnover ratio = Net Sales / (Average) Accounts receivables Receivables turnover days = 365 / Receivables turnover ratio (also called DSO) Payables turnover ratio = Purchases / (Average) Accounts payables Payables turnover days = 365 / Payables turnover ratio (also called DPO) Working Capital turnover = Sales / Working Capital Relationship between the money used to fund operations and the sales generated from these operations. 36

37 Basic Tools Key Performance Indicators Key performance indicators (KPIs) in the wood-products industry (example Stora Enso): KPIs connected to the B/S (continued): Equity ratio = Owners equity / Total assets (Eigenkapitalquote) Fixed Assets usage = accumulated depreciation / acquisition costs (Anlagenabnützungsgrad) Golden B/S rule: Fixed assets should be financed by equity (narrow) or equity + long term liabilities (wider) (Goldene Bilanzregel) 37

38 Basic Tools Key Performance Indicators Key performance indicators (KPIs) in the wood-products industry (example Stora Enso): KPIs connected to the CF: Cash Flow margin = Operating Cash Flow / Sales * 1 Gearing ratios: Debt / Cash Flow Debt / Equity (also known as debt to equity ratio) Cash Flow KPIs are currently not used in monthly reporting. 38

39 Basic Tools Financial Concepts: Efficiency in value creation (ROCE > WACC) Strength to cope with uncertainty (D/E, Equity ratio) Ability to reward stakeholders (Cash) MUST: Ability to cope with all three dimensions 39

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