Led by Finance: The Finance Team of Coca-Cola's Bottling Investments Group, under Doug Bonthrone, ACMA, CGMA (Recently Retired as Coca-Cola's Director of Global Services Strategy), Spearheaded a Hedging Project to Manage $5Bn-Worth of Commodity Risk Exposure
ALTHOUGH AN AD-HOC commodity- and currency-hedging operation was in place (run by the corporate treasury team), there was neither a view of the commodity risk throughout Bottling Investments Group (Big) nor a co-ordinated plan for tackling it. The project aimed to address these shortcomings at a time of heightened commodity-price volatility. Price rises were being driven by various factors, including increased demand for commodities; production constraints compounded by adverse weather; political interference in producing countries; and the growing influence of speculators in commodity markets.
IN 2008 the new hedging plan proposed by Big's finance team was approved. Treasury would be involved in deciding what hedging to do and how, and then executing hedges if forward contracts/derivatives were involved. In less-developed markets that didn't have an approved commodity exchange, hedging would often be done by physical means--ie, by buying and stockpiling commodities such as sugar and resin (for use in making PET bottles).
THE NEW APPROACH was based on buying commodities competitively and achieving year-on-year consistency in their overall unit cost. Hedging decisions were based on a number of variables, including forecast commodity requirements over several periods, as well as current commodity prices relative to historical prices and the outlook for prices in the short and longer term. The outlook was developed by using data received from a range of sources, including commodity traders, trade bodies and investment banks. In this way, the view on commodity prices was based on specific data and broader global themes.
A TEAM INVOLVING the president, the corporate treasurer and the heads of finance and procurement worked with the CEOs and the finance and procurement managers of all of Big's local operations to decide which commodities to hedge, at what price and over what period. Each operation provided local intelligence on commodities, while the group team provided macro viewpoints on commodities and an overall perspective on risk. …