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    Four Pillars Assignment

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    Anchal Bhatia
    This document discusses two of the four pillars of Nestle's global trade finance: 1) Risk mitigation, including country risk from diversifying across countries and currency risk from foreign exchange rate fluctuations. 2) Financing through intracompany loans within the Nestle group at interest rates ranging from Euribor or Libor plus 5 to 513 basis points, with the majority having a 3-year term without guarantees. Nestle aims to reduce translation exposure from currency fluctuations through hedging and tying cash flows and debt currencies.

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    Four Pillars Assignment

    Uploaded by

    Anchal Bhatia
    32 views7 pages
    This document discusses two of the four pillars of Nestle's global trade finance: 1) Risk mitigation, including country risk from diversifying across countries and currency risk from foreign exchange rate fluctuations. 2) Financing through intracompany loans within the Nestle group at interest rates ranging from Euribor or Libor plus 5 to 513 basis points, with the majority having a 3-year term without guarantees. Nestle aims to reduce translation exposure from currency fluctuations through hedging and tying cash flows and debt currencies.

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    FOUR PILLARS ASSIGNMENT

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    This document discusses two of the four pillars of Nestle's global trade finance: 1) Risk mitigation, including country risk from diversifying across countries and currency risk from foreign exchange rate fluctuations. 2) Financing through intracompany loans within the Nestle group at interest rates ranging from Euribor or Libor plus 5 to 513 basis points, with the majority having a 3-year term without guarantees. Nestle aims to reduce translation exposure from currency fluctuations through hedging and tying cash flows and debt currencies.

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    Download as docx, pdf, or txt
    32 views7 pages

    Four Pillars Assignment

    Uploaded by

    Anchal Bhatia
    This document discusses two of the four pillars of Nestle's global trade finance: 1) Risk mitigation, including country risk from diversifying across countries and currency risk from foreign exchange rate fluctuations. 2) Financing through intracompany loans within the Nestle group at interest rates ranging from Euribor or Libor plus 5 to 513 basis points, with the majority having a 3-year term without guarantees. Nestle aims to reduce translation exposure from currency fluctuations through hedging and tying cash flows and debt currencies.

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    Four Pillars of Global Trade Finance Assignment

    ANCHAL,ANCHAL

    300369664

    BUSN 3200-002

    SIMON PARKER

    DATE – 27 January 2023


    About the Company

    “Nestle is a manufacturer and marketer of food products and beverages. The company's product

    portfolio comprises baby foods, bottled water, cereals, chocolates and confectionery, coffee,

    culinary products, chilled and frozen foods, dairy products, nutritional products, ice cream, and

    pet products. Its major brands include Aero, Alpo, Milkybar, Nestle Ice Cream, Cerelac,

    Nescafe, Nespresso, Nestea, Milo, Maggi, Buitoni, Cailler, Movenpick, Freshly, Purina, Boost,

    Gerber, and KitKat.” (Nestle Home, n.d.-b)

    “Nestlé was formed in 1905 by the merger of the "Anglo-Swiss Milk Company", which was

    established in 1866 by brothers George and Charles Page, and "Farine Lactée Henri Nestlé"

    founded in 1867 by Henri Nestlé.” (The Nestlé Company History, n.d.)

    Following are two pillars which I choose to define international business of Nestle:

    1. Risk Mitigation

     Country risk: “The company has a presence in diverse territories which insulates it from

    the risk associated with economic and political factors of a specific region. The

    company's majority of the revenue is from the Americas (44.73%), followed by Europe

    and MENA (29.10%), and Asia, Oceania, and Sub-Saharan Africa (29.10%). By country,

    the US generates the highest revenue (30.84%), followed by China (7.10%)”. (Nestlé’s

    2021 Annual Report, n.d.) The company received a 4.09 out of 5 rating for its country

    risk.

    Diversifying the portfolio across the various countries can result in reducing the potential

    volatility of doing business in a single economic zone. By engaging in international commerce, it

    benefited from value improvements wherever it takes place while also assisting in the
    stabilisation of global financial markets. Country risk should be a factor in the value of any

    major multinational firm since it should be a result of a company's activities. In the last portion,

    we'll also go over how to transfer values between different currencies for capital planning and

    valuation, as well as how to prevent currency mismatches.

     Currency risk: “Nestlé S.A. is a Swiss company and owns a prestigious position being

    the world’s leading nutrition, health and wellness group” (Publication of 2016 Annual

    Report, n.d.). According to its annual report (2015), this company is exposed to many

    risks caused by movements in foreign currency exchange rates, interest rate and market

    prices. “The foreign exchange risk comes from transactions and translations of foreign

    operations in Swiss Francs (CHF). “The interest rate risk faces the borrowings at fixed

    and variable rates. The market price risk comes from commodity price and equity price.

    The former risk arises from world commodity market for the supplies of coffee, cocoa

    beans, sugar and others. The later risk arises from the fluctuations of the prices of

    investments held.” (Nestle annual reports, 2015)”. Therefore, to control these risks, this

    international firm makes use of financial derivatives products.

    Exchange rate fluctuations While NFI (Nestle finance international) uses short-term hedging for

    trading activities, NFI does not believe that it is appropriate or practical to hedge long-term

    translation exposure. NFI is subject to some currency fluctuations, both in terms of its trading

    activities and the translation of its financial statements. NFI does, however, attempt to reduce its

    exposure to this translation risk by tying the currencies of its trading cash flow to those of its

    debt using contracts for interest and currency swaps that are broadly similar. NFI's financial

    situation might suffer if it encounters significant currency fluctuations or has trouble utilizing

    contracts with comparable interest rates and currency swaps.


     Commercial risk: “The company's primary exposure is to the food sector, followed by

    non-alcoholic beverages. More than half of Nestle's revenue comes from food (66%), and

    the rest from non-alcoholic beverages. Low-profit margins and weak growth projections

    characterize the food and non-alcoholic beverage sectors, resulting in an average industry

    risk.” 

    There are risks outside the company control which are interest rates, exchange rates, politics, and

    weather are just a few of these. Information breaches, noncompliance, lack of insurance, rapid

    growth, and many other internal risks are within company control.

    Source: https://www.globaldata.com/data-insights/consumer/nestle-sa-risk-profile/

    2. Financing: Financing of the Nestlé Group companies: “The principal business activity of

    NFI is the financing of companies directly or indirectly controlled by Nestlé S.A. This

    financing represents the majority of the transactions with related parties in quantity and in
    amounts. There is no experience of loss for credit default resulting from this activity, NFI

    assesses the impairment risk in Note 1. The majority loans are done for a period of 3

    years and have no guarantee. In 2019, interest rates on these loans are mainly ranged

    from Euribor or Libor 1 month to 6 months with a margin from 5 to 513bps.”  (Nestlé

    Finance International Ltd. Annual Financial Report, 2019)

    Loans and Receivables: Non-derivative financial assets with fixed or determinable payments,

    such as loans and receivables, are not quoted in a market. Loans made within the Nestlé Group,

    loans made to outside parties, trade and other receivables, and accrued interest on loans are all

    included in this category of financial assets.

    “Subsequent to initial measurement, intra Nestlé Group loans and receivables are carried at

    amortised cost using the effective interest rate method less appropriate allowances for doubtful

    receivables.” (Nestle Annual Financial Report 2018, n.d.)

    The losses that Nestle finance ltd. estimates could result from the failure or inability of debtors to

    make payments when due are reflected in allowances for doubtful receivables.
    References:

    Home. (n.d.-b). Nestlé Global. https://www.nestle.com/

    The Nestlé Company History. (n.d.). Nestlé. https://www.corporate.nestle.ca/en/aboutus/nestle-

    company-history

    Nestle Annual Review 2015. (2015, December 31). Retrieved January 27, 2023,

    from https://www.nestle.com/sites/default/files/asset-library/documents/library/

    documents/annual_reports/2015-annual-review-en.pdf

    Publication of 2016 Annual Report. (n.d.). Nestlé

    Global. https://www.nestle.com/media/mediaeventscalendar/allevents/2016-annual-report

    Nestlé’s 2021 Annual Report. (n.d.). Nestlé Global. https://www.nestle.com/investors/annual-report

    Nestlé Finance International Ltd. Annual Financial Report for the year ended 31 December 2019.

    (2019, December 31). https://www.nestle.com/sites/default/files/2020-05/nestle-finance-

    international-ltd-financial-statements-2019.pdf

    Nestle Finance International LTD. Annual Fiancial Report. (2018, December 31). Nestle. Retrieved

    January 27, 2023, from https://www.nestle.com/sites/default/files/2020-05/nestle-finance-

    international-ltd-financial-statements-2018.pdf

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