ITS 835 UOTC Risk Management Chief Risk Officer & Strict Measures Discussion Chapter 18 presented special risk management issues with Blue Wood Chocolates,

ITS 835 UOTC Risk Management Chief Risk Officer & Strict Measures Discussion Chapter 18 presented special risk management issues with Blue Wood Chocolates, and chapter 19 presented various financial risks at Kilgore Custom Milling.

To complete this assignment, you must do the following:

A) As indicated above, if Blue Wood Chocolate and Kilgore Custom Milling are to develop a risk management framework, who should lead the process at each company? Should a Chief Risk Officer (CRO) be appointed? If so, to whom should he/she report and have access to? How could smaller companies without the resources for a dedicated CRO deal with ERM? What is the role for the board in such a process?

NOTE: These discussions should be informal discussions, NOT research papers. If you MUST directly quote a resource, then cite it properly. However, I would much rather simply read your words. Introduction
• Background
• Market overview
• Blue Wood financial performance
• Conclusion
Background
•
U.S. Manufacturer of chocolate products
•
Privately owned (family)
• New CFO
•
•
Outsider
Brought in to stabilize financial performance
• Blue Wood risk management practice in doubt
•
•
Banks wondering if RM gaps are causing unstable finances
Considering taking action
• Internal politics and conflict
Market Overview
• Growing market
• Major competitive factors
•
•
Large producers
Brand recognition / reputation
• Cocoa markets overview
• Sugar markets overview
• Milk markets overview
Blue Wood Financial Performance
• Profitability measures worse that competitors
•
Lots of internal finger pointing
• Deteriorated cash position
•
Currently borrowing against revolving line
•
In case cash flow couldn’t cover dividend payments
• Retained earnings falling
• Substantial investments
• Potential $10 million lawsuit
• Risky entrance into currency hedges and futures
Conclusion
• Business underperforming
• Immediate action is necessary to respond to banks
• CFO requires
•
•
Overall view of corporate objectives
Major risks facing the company
• Must have support from the top
• After initial pass
•
Implement ERM
Introduction
• Background
• The management team
• The company
• The new contract
• The financial risk management meeting
Background
• Kilgore Custom Milling
•
•
•
Small private manufacturer
Power window assemblies
Based in southern Ontario, Canada
• Pursued contracts to supply plants in the U.S.
•
Successful in negotiating a contract with Japanese manufacturer
• Previous international contracts resulted in loss
•
Due to currency volatility
The Management Team
• Owner and CEO
•
•
•
Steve MacLinden
Left day-to-day operations for the rest of the team
Manufacturing and Plant operations
•
Rory Sullivan
• Sales and Client relationships
•
Casey Dobblestyn
• Treasurer and CFO
•
Cathy Williams
The Company
• Privately owned
•
•
100% by Steve MacLinden
Planning to retire in 5 – 10 years
• Main focus is cash flow management
• Concerns with currency related cash flow issues
• Additional concern about inflation differences
•
Between U.S. and Canada
The New Contract
• Dramatically increase sales
•
Over 100% for 5 years
• Complex and exacting specifications
• All proceeds in U.S. dollars
•
Kilgore must manage financial risk
• Contract could be extended for 3 years
•
But at the same price, benefitting the buyer
The Financial Risk
Management Meeting
• U.S. and Canadian dollars near par
•
Caused concern over U.S. competition
• Multiple options to deal with currency risk
•
•
•
Long term swap contracts
Short term forward contract
Currency options
• Management team lack understanding of the options
• More open questions than answers
• Lots more to do …
Introduction
• Background
• Market overview
• Blue Wood financial performance
• Conclusion
Background
•
U.S. Manufacturer of chocolate products
•
Privately owned (family)
• New CFO
•
•
Outsider
Brought in to stabilize financial performance
• Blue Wood risk management practice in doubt
•
•
Banks wondering if RM gaps are causing unstable finances
Considering taking action
• Internal politics and conflict
Market Overview
• Growing market
• Major competitive factors
•
•
Large producers
Brand recognition / reputation
• Cocoa markets overview
• Sugar markets overview
• Milk markets overview
Blue Wood Financial Performance
• Profitability measures worse that competitors
•
Lots of internal finger pointing
• Deteriorated cash position
•
Currently borrowing against revolving line
•
In case cash flow couldn’t cover dividend payments
• Retained earnings falling
• Substantial investments
• Potential $10 million lawsuit
• Risky entrance into currency hedges and futures
Conclusion
• Business underperforming
• Immediate action is necessary to respond to banks
• CFO requires
•
•
Overall view of corporate objectives
Major risks facing the company
• Must have support from the top
• After initial pass
•
Implement ERM
Introduction
• Background
• The management team
• The company
• The new contract
• The financial risk management meeting
Background
• Kilgore Custom Milling
•
•
•
Small private manufacturer
Power window assemblies
Based in southern Ontario, Canada
• Pursued contracts to supply plants in the U.S.
•
Successful in negotiating a contract with Japanese manufacturer
• Previous international contracts resulted in loss
•
Due to currency volatility
The Management Team
• Owner and CEO
•
•
•
Steve MacLinden
Left day-to-day operations for the rest of the team
Manufacturing and Plant operations
•
Rory Sullivan
• Sales and Client relationships
•
Casey Dobblestyn
• Treasurer and CFO
•
Cathy Williams
The Company
• Privately owned
•
•
100% by Steve MacLinden
Planning to retire in 5 – 10 years
• Main focus is cash flow management
• Concerns with currency related cash flow issues
• Additional concern about inflation differences
•
Between U.S. and Canada
The New Contract
• Dramatically increase sales
•
Over 100% for 5 years
• Complex and exacting specifications
• All proceeds in U.S. dollars
•
Kilgore must manage financial risk
• Contract could be extended for 3 years
•
But at the same price, benefitting the buyer
The Financial Risk
Management Meeting
• U.S. and Canadian dollars near par
•
Caused concern over U.S. competition
• Multiple options to deal with currency risk
•
•
•
Long term swap contracts
Short term forward contract
Currency options
• Management team lack understanding of the options
• More open questions than answers
• Lots more to do …

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