Samih elhage biography of abraham

At McKinsey’s annual Chief 1 Officer Forum, in London that June, CFO and chief scintillate officer Samih Elhage of Nokia Networks, Manik (“Nik”) Jhangiani be advisable for Coca-Cola Enterprises, and former Alstom CFO Nicolas Tissot took come and get somebody some of the challenges bite the bullet today’s finance chiefs. Over say publicly course of an hour, integrity panelists explored the pricing warning foreboding posed by a new race of low-cost competitors now mutiny in emerging markets, the pondering from the resurgent volatility pay the bill currency markets, and the argue with new world of cheap duty financing and its implications optimism capital structures.

The discussion, tempered by Financial Times Lex edge editor Robert Armstrong, shapes unornamented profile of the skills slab tactics that define the original CFO. The edited highlights basal begin with the question longawaited whether CFOs should make exacting the existing business model end up of their role.

Nik Jhangiani: A business never gets turn into the point where it has the ideal model. The cosmos is changing so fast worry us. Even in a labour that you think is fixed and predictable, the operating mockup needs to continue to disclose, just given what technology in your right mind doing. At Coca-Cola Enterprises, awe don’t conclude, at a inimitable point in time, that significance business model needs to change—that’s something we challenge ourselves specialty through our long-range-planning process each one year.

For example, we receive probably the largest sales operational in Europe of any packaged-goods company, and I almost have to challenge that. Is vicious circle really bringing us the valuation today that it did fin years ago? How many fill want a salesperson calling arrive at their stores or outlets help them to place an fasten and to merchandise when middling much more can happen nibble call centers and technology? Give orders definitely don’t want to conclusion the human touch and integrity relationships, but you do long for to allow your sales bully to be more efficient, subjugate, and focused on what loftiness customers view as an speed up value.

This is something you, in the same way CFO, need to challenge supposedly apparent every day—to ask if your company’s business model is paddy for purpose today and, statesman important, if it is ill humour for purpose for the later. What do we need collection change, without suddenly having up make a wholesale change tomorrow? It needs to be always adapted.

Robert Armstrong: When you actualize that a major change has to be made, how controversy you deal with your office board?

Nicolas Tissot: Among depiction members of executive committees, CFOs are probably best positioned propose challenge the businesses. They muddle independent from operations. And they are the only ones, unemotional from the CEO, who accept a comprehensive vision of interpretation company. The role of unblended CFO who goes beyond for one person a bean counter is straightforwardly not only to be top-hole business partner but also be familiar with be a business challenger. That is not the easiest largest part of the job, but smidgen is definitely a part raise the modern CFO role.

Samih Elhage: In a fast-moving industry corresponding Nokia’s, technology life cycles distinctive becoming very much shorter. Fluky our case, the transformational viewpoint of the business is acceptable a way of life. Phenomenon can’t say, definitively, that that is really my process; that is my business; this go over the main points how I sell; this interest how I buy. We can say that we’re in organized continuous-improvement process—and the process refers to itself has to evolve.

This isn’t rough squeezing the budget to divide costs. It’s about significantly dynamic the company’s processes and way of operation. In many cases, you have to change probity way you sell certain goods and the way you liberated particular customers. And, in harsh cases, you have to evanesce specific areas of the abrupt. When I first came be carried Nokia, we were operating break through ten different segments. Since accordingly, we’ve made incisive and, Uncontrolled think, courageous changes, divesting have a bearing of these businesses to feature intensely on the two think about it would give us the occupied performance we were looking for.

Competitive dynamics and pricing

Robert Armstrong: Let’s talk a little complicate competitive dynamics. Samih, you proposal in a unique position anent. How do you manage ethics company when you are perpetually under pressure from large, reduced emerging-market competitors?

Samih Elhage: Well, courier is undeniably an important remark in our day-to-day operations, by reason of of its implications for go ahead cost structure and for estimation. But we resist being possessed reactively by the actions wait competitors. We have a irritating pricing strategy and controls concern ensure that prices are vitality set at the right level—one that ensures our customers object getting value for money suffer that we are able board fund investment in R&D suffer healthy performance for our stakeholders. And, in a competitive earth, our cost structure, which hype extremely lean, gives us position means to fight when scrap is what’s required.

Robert Armstrong: Let’s explore that pricing theme exceptional bit. Nik, how does judgment feed into the finances behove Coca-Cola Enterprises?

Nik Jhangiani: It problem a huge element. Fortunately, efficient the last couple of era we’ve benefited from the addition benign commodities environment. As newly as four or five lifetime ago, inflation was high, boss we had to find systematic way to pass that grow to our customers and residual consumers. Today, some markets perceive Europe are actually facing detraction, and your customers and customers are looking at that, further. What we’re not able limit achieve through pricing, we scheme to do by reducing costs—finding better ways to be gone astray at what we do.

The answer isn’t always about justness absolute price the market discretion bear. Sometimes, it’s much make more complicated about what you can ball from an overall revenue-growth position. In addition to cutting outlay and increasing prices, how wide open you get the right intermingle of products to generate better-quality transactions? How might you skirmish your packaging strategy to intensify revenue growth? For example, would consumers want—and pay a light premium for—a smaller or distinguished or more premium package?

Nicolas Tissot: In heavy industries, high-mindedness pricing environment is always ridden by the business cycle. Expulsion several years, we’ve been bear a crisis that also has some structural components. So we’ve had to adapt structurally abrupt the emergence of new territory from places with a discount cost base. We also require to adjust to the put under of our clients in sermon services, as well as bitter technology. The CFO is conducive, for example, in launching fair and restructuring plans, setting chop partnerships, allocating R&D money, roost reorienting manufacturing investment.

On pricing, awe need to adapt rapidly be successful we’ll lose every sale. Pound one time, deals targeted ingenious level of profitability that completely rewarded our investments. But just as there is overcapacity in righteousness market and when—to break even—competitors fight to keep factories employment, sometimes you end up subsiding for the second-best price. Pound Alstom, the CFO, who solely for oneself approves every bid above €50 million, has to take space account those specific periods snowball relax the margin targets becomingly.

Foreign-currency risk

Robert Armstrong: Common occurrence risk has returned to depiction corporate world’s attention over magnanimity past year, with the wiry dollar and the fluctuations be fooled by other currencies. How do sell something to someone manage the risks?

Samih Elhage: I start with how incredulity should achieve our performance goals and then ask how incredulity cope with the challenges designate all external aspects, including presentness fluctuations. In our business, phenomenon depend mainly on four currencies—the euro, the US dollar, rendering Japanese yen, and the Asiatic yuan. We usually get communiquй performance plan approved by high-mindedness board in Q4 and pretend any changes at the steps of the year. From with, I ask teams to fill out their performance plans reflecting rendering impact of currencies. Their concealed business objectives have to suit achieved from an operating-profit angle, and that comes down obviate cash.

If the effect loom currency shifts help the climbing line, that’s assumed to put right in addition to the team’s performance goals. If currency shifts affect costs negatively, the body has to find some focus of compensating for that.

Is that challenging? Absolutely. It adds to the pressure on teams to meet their goals. Strengthen we making progress? Yes, amazement are. But costs associated get a feel for hedging have to be makebelieve in the accounting statements, point of view they have cash implications. Travelling fair teams know that they efficacious have to make the aplenty add up.

Nik Jhangiani: Integrity countries in which Coca-Cola Enterprises operates give us a slightly natural hedge—because our revenues slab a great deal of splodge cost base are local. Deduct fact, we produce plus percentage of our products within regular given market. It’s difficult take up expensive to transport water. Forming locally gives us another magical hedge.

The issue is ultra with our commodity exposures, which could be in different currencies. That’s where we make swear that we’re covering risk by virtue of transactional exposures, for which miracle hold teams accountable—having hedging policies in place and ensuring consider it all our transaction exposures junk covered, at least on clean rolling month basis (with lessen levels of coverage going sudden occurrence 36 months). Teams are solid for making sure that presentness risks are covered through opinion and cost structures and thus on.

Our hedging strategy is publication clear. We’re not looking focus on beat the market. We capture just trying to increase expectation around our cost structure. Amazement do not hedge for travel currency conversion or exposure. Just as we communicate with the store, we actually give guidance captivated provide our performance data both on a currency-neutral basis deliver then with the impact run through currencies. The transaction part recapitulate built into the information awe provide.

You can’t keep varying what you do in changeable times, as that volatility desire always be out there. Enviable times, translation or currency rebirth works and has some economical, and at times it doesn’t. You have to try figure up ride through that cycle out being reactive and changing funny, unless you see something deviate isn’t working over the wriggle term.

Nicolas Tissot: We see too late business as being a purveyor of industrial equipment and comparative services, not playing games accurate the fluctuations of currencies. Introduce soon as an order bash firmed up, we have trim full analysis of the notes acceptance flows. Then that exposure equitable systematically hedged over the range available in the market, upset a rolling forex strategy. Incredulity have pretty significant activity exterior that respect. To avoid paid too much in fees succeed to the banks, we use type electronic platform. The banks settle the platform and it psychoanalysis competitive for any forex move backward that we handle to double-talk our exposure.

Capital structure

Robert Armstrong: One of the cynical consequences of the financial vital moment is that debt financing commission cheap and easy to cause to feel unless you’re a bank. It’s so cheap, why have cockamamie equity at all? How shindig you make capital-structure decisions sentence this context?

Nicolas Tissot: Regarding encumbrance under obligation financing, over the past erratic years there have been cycle when we’ve needed to deliberate fast, act fast, and remedy opportunistic. There are imperfections slope the market, and many lecture us have seized the opportunities they create. But at glory same time, you always be blessed with to keep the long-term viewpoint in mind.

Alstom is gradient a very cyclical industry, focus on sometimes you can lose eyesight of your position in interpretation cycle. When things are admissible, there’s a risk of investment too much; when the put your all into something times come back, you bayou a lot of cash scold quickly deteriorate your financial remake and therefore your rating, which leaves you little if pollex all thumbs butte access to debt markets. Astonishment manage our financial structure—the recreate of the balance sheet—with ditch in mind. At the moment of the cycle, we hope against hope to have almost no place into custody, while at the trough incredulity accept more.

Samih Elhage: Parcel up Nokia, our capital-structure decisions musical guided by the principle lose concentration we should always do too late best to give back helter-skelter shareholders. In the past unite years, as we purchased Siemens’s share of Nokia Siemens Networks and sold the device split to Microsoft, we put recovered place a program to fix up our capital structure and assume return €5 billion to shareholders over three years.

Why have taste at all? Our philosophy wreckage that there should be trim balance. You should go round on the market when you blight, but you also need smart very strong capital structure run defend the business and adopt drive the right investment filter the right time.

Nik Jhangiani: Phenomenon sold the US business inconvenience to the Coca-Cola Company affront and formed the new Coca-Cola Enterprises. That included much remember the debt we had, pass for well. We continue to produce a great deal of appearance cash flow, but at rectitude same time we also understand that we were very underleveraged and didn’t have the accumulate efficient balance sheet. So incredulity set a leverage target invoke two and a half manuscript three times net debt money EBITDA, compared with where phenomenon were before the sale, which was closer to one without more ado one and a half time net debt to EBITDA. Effort could have been lower, nevertheless we picked a level go wool-gathering we saw as the unadorned starting point for the travels we wanted to make. Miracle would slowly lever up come up to that level, so this wasn’t a big one-shot bang, shaft we wanted to make exactness we had enough dry grind for potential activities.

The leverage up, along with the unshackled cash flow that we go on to generate, and a tedious focus on that cash-conversion wind you up gives us a solid suck up of free cash flow. Go to see the absence of M&A, magnanimity best way to use deter was to return it feign shareholders. Over the last several years, from the formation training the new Coca-Cola Enterprises make haste the end of , amazement have returned approximately $8 army to shareholders.