Controlling in the Wood Products Industry

Controlling in the Wood Products Industry
SS 2015
Albert Sickl
Module 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
Module 2
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
Module 2
Basic Tools
The magic triangle regarding the financial body:
Profit & Loss Statement (…the muscles)
KPIs
Balance Sheet (…the bones)
Cash Flow (…the blood)
4
Module 2
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)
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Module 2
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
Module 2
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
10. 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
Module 2
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
Module 2
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
Module 2
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: 150.000; RAI 250.000; TAW 80.000
Kosten Intendanz: Musical: 600.000€; Oper: 500.000€
Leading Team Kosten: RON: 300T€; RAI: 350T€; TAW: 500T€
Produktionsausstattung:
RON: Bühne (450T€); Ton (50T€); Licht (50T€); Kostüm (200T€)
RAI: Bühne (500T€); Ton (50T€); Licht (50T€); Kostüm (200T€)
TAW: Bühne (600T€); Ton (50T€); Licht (50T€); Kostüm (300T€)
Personalkosten Haustechnik: RON: 25 Personen; RTH: 30 Personen; TAW: 20
Personen (durchschnittliche Kosten: 60.000€ / Person)
Orchester: RON: 10 Personen; RAI: 15 Personen; TAW: 20 Personen
(Durchschnittskosten pro Person: 60.000€)
10
Module 2
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: 10.000h; RAI: 12.000h;
TAW: 6.000h (durchschnittliche Kosten: 30€/h)
Marketing (produktionsbezogen): RON: 300T€; RTH: 450T€; TAW: 600T€
Hausbezogener Materialaufwand: RON: 400T€; RTH: 350T€; TAW: 300T€
Durchschnittlicher Ticketpreis: RON: 45€; RAI: 50€; TAW 60€
Personalkosten FM Haus: RON: 25 Personen; RTH: 30 Personen; TAW: 20
Personen (durchschnittliche Kosten: 40.000€ / Person)
Cast: RON: 2.750T€; RAI: 3.125T€; TAW: 2.000T€
Overhead: Sonstiger Aufwand (Material, bezogene Leistungen): 2.500T€;
Zentrale Technik: 1.000T€; Zentrales FM: 700T€; Generaldirektion: 1.500T€
11
Module 2
Basic Tools – Income Statement or P&L
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
Musical
Opera
Ronacher Raimund
Theater a.d. Wien
150.000
250.000
80.000
6.750.000 12.500.000
4.800.000
-300.000
-350.000
-500.000
-750.000
-800.000
-1.000.000
-2.750.000 -3.125.000
-2.000.000
-600.000
-900.000
-1.200.000
-300.000
-360.000
-180.000
-300.000
-450.000
-600.000
1.750.000 6.515.000
-680.000
20.000
60.000
20.000
-400.000
-350.000
-300.000
-1.500.000 -1.800.000
-1.200.000
-1.000.000 -1.200.000
-800.000
-1.130.000 3.225.000
-2.960.000
-300.000
-300.000
-500.000
-3.460.000
1.495.000
-2.500.000
-1.000.000
-700.000
-1.500.000
-7.665.000
200.000
-7.465.000
TOTAL
24.050.000
-1.150.000
-2.550.000
-7.875.000
-2.700.000
-840.000
-1.350.000
7.585.000
100.000
-1.050.000
-4.500.000
-3.000.000
-865.000
-1.100.000
-1.965.000
-2.500.000
-1.000.000
-700.000
-1.500.000
-7.665.000
200.000
-7.465.000
12
Module 2
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?
1000 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 saw n 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
24.849
1.450
67
0
0
26.366
868
0
0
0
868
0
3
27.237
0
0
0
0
0
0
0
27.237
-9
-24
0
-33
0
0
0
27.205
6
0
48
0
0
0
-357
-14.471
0
0
-14.471
-1.269
-96
0
-16.193
13
Module 2
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 = 0
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
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Module 2
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 * 100
Safety margin [volume] = (Planned volume-Minimum volume) / Planned volume * 100
Targeted Turnover = (Fixed costs + Profit) / Contribution margin %-age
15
Module 2
Basic Tools – Income Statement or P&L
Example 2:
A company has the following planned parameters:
Sales volume:
2.000 bicycle shoes
Production volume: 2.300 shoes
Variable costs/shoe: 120EUR
Net sales / shoe: 180EUR
Fixed costs:
110.000EUR
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 25.000EUR
p.a.?
7) The head of sales suggests a 5% price decrease. How many % more sales is the minimum
requirement?
16
Module 2
Basic Tools – Income Statement or P&L
Plan P&L Example 3:
A company has the following planned parameters:
Production volume:
8.100 aero-helmets
Sales volume:
8.000 aero-helmets
Net sales / helmet:
240EUR
Production time / helmet:
15min
Production wages / hour:
130EUR
Overhead production costs:
100%
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
150.000EUR
Other fixed costs
100.000EUR
Depreciation
190.000EUR
Interest costs
60.000EUR
1)Establish a plan P&L (Gesamtkostenverfahren)
2)Calculate the ROS
17
Module 2
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
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Module 2
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
Module 2
Basic Tools – Balance Sheet (B/S)
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Module 2
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
Module 2
Basic Tools – Balance Sheet (B/S)
22
Module 2
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
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Module 2
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
Module 2
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
Module 2
Basic Tools – Balance Sheet (B/S)
– Working Capital / Inventories:
26
Module 2
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 * 360 / (Term for payment – Cash discount period)
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Module 2
Basic Tools – Balance Sheet (B/S)
– Working Capital / Accounts receivables:
28
Module 2
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
Module 2
Basic Tools – Cash Flow (CF)
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Module 2
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
Module 2
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.
2.
3.
4.
5.
6.
Don't manage to the income statement.
Don't reward the sales force for growth alone.
Don't overemphasize production quality.
Don’t tie receivables to payables.
Don’t manage by current and quick ratios.
Don’t benchmark competitors.
32
Module 2
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:
B/S:
Sales
Fixed Assets
Equity
+/-
Change in inv
Inventories
Accruals
-
Variable costs
Trade Receivables
-
Fixed costs
-
Depreciation
=
Operating Profit
Trade payables
CF:
Operating Profit
+
Depreciation
+/-
Change in inventories
+/-
Change in Receivables
+/-
Change in Payables
33
Module 2
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
Module 2
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 *100
Return on Capital Employed (ROCE) = Operating Profit / Operating capital *100
Personnel intensity = Personnel costs / Sales *100
Maintenance intensity = Maintenance costs / Sales *100
Raw material intensity = Raw material costs / Sales * 100
35
Module 2
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
Module 2
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
Module 2
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 * 100
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
Module 2
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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