ARTICLE
09  MARCH 2016

“The greatest defence against uncertainty is a solid balance sheet.” 

Sydney members of The Faculty’s CPO Roundtable were thrilled to have Chris Lynch, Chief Financial Officer of Rio Tinto, as a surprise inclusion to the program at their February event. 

The 30-year veteran of the mining and metals industry brought a truly global outlook to the Roundtable, deftly summarising the state of the world economy and providing his thoughts on how Procurement can react to an uncertain climate.  

Uncertainty and volatility reigns in the global economy

Lynch has his finger on the pulse of the global market, and his ability to make informed statements at a macro level provided a refreshing viewpoint for Roundtable CPOs grappling with domestic or state-based challenges. His summary of regional economies:

  • The US has achieved a modest 3% GDP growth, with the deterioration in commodity market conditions leading to significant rating downgrades of several resource giants, including Anglo-American.
  • Growth in Europe continues to slow, with the refugee crisis having an ongoing impact in Germany, EU’s economic powerhouse.
  • China is in the process of determining what normal looks like for the economy now that the boom is over.
  • Saudi investors are repatriating their global investments, pulling overseas cash back into their domestic economy.

In short, Lynch describes the world economies as being in “reset” mode, creating an economic climate characterised by fragility, uncertainty and volatility. 

The three R’s: Robustness, Returns and Readiness

Citing Rio Tinto’s decision to move from its progressive dividend policy to a more flexible approach in response to an uncertain market, Lynch’s advice to Australian organisations is to take decisive action to protect their balance sheets while they are in a position of strength. This means taking the opportunity to liberate and preserve cash while you can - in Lynch’s words, “The greatest defence against uncertainty is a solid balance sheet”.

Roundtable attendees eagerly scribbled down Lynch’s “Three R’s” for operating in an uncertain climate:

  • Build robustness against volatility during challenging times
  • Generate returns to shareholders by having strong balance sheet
  • Ensure readiness to take advantage of opportunities.

Before leaving the Sydney Roundtable to once again plunge into the myriad challenges faced by a global CFO, Lynch shared the following advice for commercial leaders facing uncertainty:

  • Never stint on a final review or product test before deploying capital. The extra investment in time and resources will always pay off in the end.
  • Chief Procurement Officers should position themselves as part-custodians of the balance sheet.
  • (On mergers and acquisitions): "When two organisations come together, it's in your best interest to prove you have the better procurement function."
  • Three key areas that CPOs can play a supporting role for their CFOs are P&L, Balance Sheet, and Cash Flow.

The Faculty Roundtable comprises of an influential group of procurement leaders who gather to share their experiences and insights, to achieve greater commercial success for their organisations. Through The Roundtable, members have access to leading-edge thought leadership and commentators, a ready supply of valuable expertise through exclusive market intelligence, as well as networking and professional development opportunities for themselves and their team members.

The Asia-Pacific CPO Forum is the region’s premier procurement event dedicated to accelerating commercial leadership at the highest level. It is a once-a-year opportunity for leading Chief Procurement Officers to engage with peers and like-minded business leaders in an intimate and interactive setting. The Forum is designed for delegates to facilitate the sharing of best practice strategies, develop innovative and responsive procurement approaches, and hear from a compelling speaker line-up of influential thinkers, eminent business leaders and commercially creative minds.

In 2016, The 9th Annual Asia-Pacific CPO Forum will held on 18th and 19th May in Melbourne, Australia. For more information contact Program Manager, Belinda Toohey, on +61 3 9654 4900 or via email.​