Q1. Could you start by giving us a brief overview of your professional background, particularly focusing on your expertise in the industry?

My career path is quite typical for a CFO. Starting from controlling, I gained exposure to all adjacent finance and business functions — accounting, treasury, sales, procurement, and IT.

I have professional experience in across large international and local companies, working in diverse industries such as pharmaceuticals, FMCG, home appliances and the chemical sector. Moreover, working in businesses with different cultures (Western and Asian) has allowed me to develop various approaches to business decision-making.

 

Q2. What frameworks can be used to prioritize CAPEX between 'Maintenance' and 'Growth' projects, and how can the hurdle rates for inflation or geopolitical risk be adjusted?

I use the following criteria in descending order of importance.

Main criteria:

1. Critical equipment, production stoppage. CAPEX related to business continuity. Failure of this type of equipment can lead to a production halt, which means a cessation of cash flow generation at a rate equal to the company's operating cycle. Therefore, projects in this category have the highest priority.
2. Macroeconomics (ability to fund long-term projects). Worsening macroeconomic policy negatively affects both the cost of project financing and the economic performance of projects. Thus, during periods of macroeconomic tightening, additional risks must be factored into projects. That is, during such periods, only projects with a higher margin of safety can be executed. (High financing costs can be offset by cheaper borrowing from international capital markets, but this requires hedging currency risks.)
3. Strategic projects (IT, other). Large-scale projects that form the backbone of the company and can change the industry status quo have higher priority. Such projects are often long-term in nature, periodically deviate from previously agreed schedules, and require an additional liquidity buffer.
4. Short‑term, medium‑term, long‑term. Short‑term projects have higher priority than medium‑ and long‑term projects, especially during periods of worsening macroeconomic policy. However, it should be noted that managers may sometimes push for short‑term projects based on a desire to show results during their tenure, which could increase the probability of their staying with the company.
5. Project financial metrics. A classic project prioritization criterion that leads to the inclusion in the current investment portfolio of projects with the best financial indicators.

Additionally, I would like to highlight the following important issues related to the CAPEX topic.

Other issues - 

1. Common financial practice defines CAPEX as the purchase of goods that meet the criteria for fixed assets. However, there are often cases where a purchase formally does not meet the fixed asset criteria, but its acquisition affects EBITDA. I call such an acquisition CRAC (cost require additional confimation), and this type of purchase requires an approach similar to launching a CAPEX project.
2. Some projects are difficult to quantify at first glance. However, this quantification can be performed using an opportunity cost approach — that is, by calculating the theoretical losses to the company and linking them to the probability of a specific scenario materialising.

 

Q3. What framework can be useful in deciding when to move from 'Intercompany Funding' to 'Stand-alone Local Financing'? How can the 'Transfer Pricing' risk be mitigated while repatriating profits to the parent company?

Several criteria should also be used for making such decisions. Specifically, the cost of financing a project in a subsidiary may be cheaper than for the parent company. Moreover, a subsidiary may operate in special economic zones with additional incentives, which can enhance the financial returns of the investment project. Another key point is that management pays closer attention to "internal" financing than to financing from the parent company. Internal financing also reduces the risks associated with transferring capital in various forms across borders.

 

Q4. In your experience of managing high-import manufacturing during extreme volatility, how can one calibrate the internal hedge rate to capture FX alpha, and what mechanism can help for managing the liquidity drain of derivative margin calls?

The answer depends on the risk appetite of the decision‑maker. For instance, my risk appetite is moderate, so I avoid aggressive approaches to hedging and FX alpha generation.

My main tools are a rolling cash flow forecast, a P&L forecast, and the budget exchange rate over a 3‑ to 6‑month horizon.

I then follow a strategy of hedging up to 50% of currency payments over three months, allocating 50%, 30%, and 20% to each successive month.

This leaves me with a 50% exposure (the unhedged portion) to potentially capture FX alpha when closing the currency position. In other words, I earn some FX alpha through strategic hedging and the rest through tactical decisions based on the spot rate, the budget rate, and swap points.

For hedging, I use a mix of forwards, options, structured options, and natural hedging.

This combination helps mitigate the risk of liquidity drainage.

 

Q5. What specific inventory or receivables policy can help reduce Cash Conversion Cycle and how can this reduction be achieved?

This is one of my favorite questions in company cash flow management. Since the operating cycle consists of three parts, the answer should include all three parts.

In my answer, I will assume that at the start of the operating cycle optimization, the contractual terms with customers and suppliers have already been established historically, and inventory levels have adjusted to the company's business rhythm.

The most favorable moment to begin extending payment terms to suppliers or reducing payment terms from customers is a period of macroeconomic stability and low interest rates. Accordingly, the most difficult period is a time of macroeconomic instability, because changing payment terms will be sensitive for both suppliers and customers.

DPO (Days Payable Outstanding). I will highlight several options for extending payment terms, which can be combined:

1. Extending payment terms by increasing the volume of supply / price of goods (requires calculation to confirm the economic effect).
2. Using various financial instruments that insure the supplier against non‑payment risk, with a cost lower than bank financing – for example, a letter of credit.
3. Offering the supplier the opportunity to borrow under the company's umbrella credit facility by granting an additional deferral.
4. Extending the deferral through the company's long‑term payment discipline.

DSO (Days Sales Outstanding). Options for DSO largely coincide with those for DPO:

1. Reducing payment terms by increasing the volume of supply / price of goods (requires calculation to confirm the economic effect).
2. Using various financial instruments whose cost is lower than classic lending – for example, factoring.

DIO (Days Inventory Outstanding). Optimizing DIO requires a great deal of work related to determining standard inventory levels by product group / SKU, reducing the minimum order quantity, and improving the quality of production and sales forecasts.

Thus, optimizing the operating cycle requires long‑term collaborative work among the company's managers. An important role for finance in this process is to synchronize departments around quantified and commonly understood metrics, provide high‑quality metric forecasts, and monitor the implementation of optimization initiatives while assessing the economic effect.

In addition, I would like to draw attention to the need to adjust the classic formula for these metrics – it is too general and often does not meet business needs. It is also important to explain to the responsible managers (procurement, sales, production) how the above‑mentioned indicators are calculated and what they depend on.

 

Q6. Based on your experience, which specific factory-floor inefficiency if left unaddressed can pose the greatest threat to the consolidated EBITDA?

In my view, the most potentially inefficient process is production specification and its optimization. This is because even a small inefficiency in this area impacts EBITDA via the formula Production Volume × Cost of Inefficiency, which is incomparable to inefficiencies in OPEX expenses.

My primary tool for addressing production inefficiency is the continuous improvement approach from the Theory of Constraints (TOC). The finance function can support this by using variance (factor) analysis to identify the root causes of adverse variances. Finance also plays a key role in coordinating other departments to formulate corrective action plans and in monitoring execution while quantifying the economic impact.

 

Q7. If you were an investor looking at companies within the space, what critical question would you pose to their senior management?

I would ask several questions:

1. The profile of the team, and particularly its CEO and CFO.
2. The current state of the industry and the company's vision of the industry's future.
3. The company's business strategy, with a focus on its financial strategy.
4. Specific plans the company has to achieve future performance targets, along with actual examples of implementation.
5. Examples of the company's unsuccessful decisions and the changes made to processes as a result.