Risk Management Is a Living Organism

Such topics always run in cycles and when interest rates rise and capital becomes scarcer, working capital solution become very popular. At Ottobock, we have been working on this issue for over 20 years. Back then, we started with an asset-backed securitization program (ABS) in which we sold receivables. For regulatory reasons, we then switched to a factoring program and looked around for further innovations. 20 years ago, the market already offered solutions for supply chain financing, but they all had major problems, such as supplier onboarding. A lot has happened in the market in the meantime and the problems from back then have been solved. 

We were made aware of the solution by RBI. I really appreciate the fact that RBI walks through the service universe with open eyes and acts like our extended arm, like a detector for innovation. Solutions are pre-filtered and we then enter into a dialog. Collaboration is an engine for innovation. 
After the offer from RBI, we also asked for other offers from our consortium banks and organized a competition for the best ideas. From around 34 different concepts, we then selected RBI's way to implement this solution together with the payment services provider cflox, which was in 2021. cflox as a company has also grown with us and after we implemented its solution, many other companies jumped on board. We are a little proud that we implemented the program together with RBI very early on.  

Think about 20,000 or even 30,000 different suppliers with different purchase frequencies and volumes. With such a large amount of data, processing has to be very efficient. In this case, communication takes place via an EBICS channel (Electronic Banking Internet Communication Standard), that had already been set up for payment transactions, so we don't have to upload anything in addition and don't have any extra work. 
Furthermore, we don't have to actively involve the suppliers in the process or obtain consent. The supplier receives its payment on the due date from an account in the name of Ottobock. We automatically have a quota of 100% and the process is completely controllable and predictable. This allows us to realize significantly larger nominal amounts in a very efficient way. 

From my perspective, it is important that Ottobock is always in a position to quickly revive this topic when necessary, in order to be able to react to changes. Even if we were to use the program less intensely in the future due to interest rate developments, we would continue to operate the programs. The capital markets are very fast and so we are able to react quickly and adapt the intensity of use to our needs.  

We are a medium-sized, family-owned company and generated sales of 1.6 billion euros last year. One of the main pillars of our financing is bank financing with our core banks in a syndicated loan. Within our core banking group, we also provide other services such as currency solutions.  
With the Schuldschein loans, we can also address other bank investor classes, such as institutions that have no interest in other transactions due to their business model, i.e. pure asset takers, or large commercial banks that do not participate in the syndicated loan for various reasons. We can reach these investors via the Schuldschein loans. 

When it comes to corporate financing or financial market risk management for interest rate risks or exchange rate risks, we work with RBI on a centralized basis in our subgroup parent company, as well as for cash pools and netting agreements for the Group.  
The area of payment transactions is naturally a little more decentralized. We are present in over 50 countries, in some cases with several subsidiaries in one country, and there are also local payments for wages and salaries, for tax payments or for local sourcing. It is important to us that we also have a local partner from the relevant banking cosmos. With RBI, we are focused on the European region with a focus on Eastern Europe. 

When I started organizing the treasury at Ottobock around 20 years ago, interest rates were managed differently than they are today. In contrast to currencies, which are an incredibly fast-moving asset class, interest rates moved comparatively slowly. We have seen crises, we have seen that interest rates can also become negative, money was very cheap for a while. When young treasurers started working at Ottobock a few years ago, they didn't even know that interest rates could also be positive. When interest rates rise quickly, as we experienced two years ago, it is a challenging situation for a company. In Treasury, our aim is to give the company time and space to adapt the balance sheet structure to the new situation so that the interest burden doesn’t consume the cash flow. With the help of RBI, we are very well positioned and have implemented long-term interest rate hedging instruments that have secured us this very favorable interest rate for many years and we have been able to mitigate a lot of this rising interest rate. 

The good thing about this service from RBI is that it is not about a product at all, but the focus is clearly on advisory. It's about jointly developing a smart solution based on key performance indicators. This is where innovation is created together. For us, it is important that a decision is based on key performance indicators and therefore transparent, so that we are able to argue within the company. In fact, around two years ago, we jointly anticipated the rapid rise in the Euribor from -0.4% to 4%, which occurred within a few months. We were able to achieve a very good result together with relatively high hedging ratios. This means that we will continue to participate in these very favorable interest rate conditions for some time to come. 

Ottobock is increasingly orienting itself towards the capital market. And of course regulation plays a major role here. We have switched from HGB to IFRS, which also has a major impact on risk solutions in the area of derivatives. The second is the topic of resilience. Since Covid, we have seen that things can change very quickly and disruptively, that even the unbelievable is possible, and that certainly has implications for our risk management. Risk management always has to be tailored to the company and its requirements, which also change over time. The risk strategy must therefore also change, which in my view is like a living organism that adapts to the company and its environment. 

Such a long business relationship shows that it's always about the people. It's a people's business. On the one hand we have key performance indicators and on the other hand we have trust. This involves knowing and understanding each other. Our business partners need to know how we operate, where the risks and opportunities are in the business model. Conversely, I also need to have a sense of how decisions are made at RBI, what the risk appetite is, the performance in individual services, the processes in the background. 
That pays off and that's what you want to maintain. For me, cooperation is an ongoing investment. Then this solid business relationship also carries you through difficult situations and we consider the understanding and trust to be of incredible value. In addition, there is the innovative strength I mentioned and, last but not least, the fun and shared joy of implementing great projects, for example with the cflox pay solution in working capital financing or in the area of financial market risk management.  

Thank you for the interview! 

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