A triumph of risk management

Based in Switzerland but founded in Germany 125 years ago this year, family-owned Triumph was for a long time a decentralised organisation that grew to become a company with a turnover of CHF2.2 billion and 36,500 employees. Today, it manufactures in ten out of the 46 countries in which it has an established presence, and operates in a total of 120 different markets.

Triumph specialises in high-quality, mid-segment-priced underwear, where fit and comfort are of crucial importance. Renowned brand names such as Triumph, Sloggi, Valisère and HOM belong to the group. As CFO Javier van Engelen explains, Triumph has recently made two major strategic changes. The company began to centralise its functions, not least risk management and insurance in its global headquarters in Bad Zurzach. It also decided to establish its own retail stores alongside its wholesale trade.

Risk mapping

"Two years ago we started with global risk mapping," says van Engelen. "We asked everyone within the company to do a risk map, a heat map of the biggest risks that we have from their individual functions." Up until this point, there had been a disjointed view of the totality of risk. Creating the map produced a picture of the compounded risks and opened executives' eyes to the reality that while individual risks could be managed, there was considerable complexity when they were taken together. It was also clear to the Triumph global management board, which oversees risk management, that all risks should be reviewed at least annually, along with the strategies to mitigate them.

Insurable hazards such as trade credits, any type of liability and trade or value chain disruption were clear and defined. However, as Sabrina Hartusch, Triumph's global head of insurance, points out, it is still important to promote competition among insurers and to diligently select your provider. The company insists that policies are tailored to Triumph's specific requirements rather than simply supplying off-the-shelf products.

Hartusch has conducted a stringent analysis of Triumph's insurance world. As a result, the company does not pay for risks it no longer considers important. Moreover, competition has reduced premium cost and delivered a better service. What is also clear is that global insurance is ultimately responsible for all company policies, from legal entity to personnel insurances.

Van Engelen and Hartusch have done much to promote effective communication within the Finance and Administration function and emphasise the importance of cross-departmental alignment among all stakeholders, not to mention the great strides that have been made in terms of Triumph's organisational structure.

Uninsurable risks

Among the uninsurable risks that were thrown up by the risk map, van Engelen singles out three key areas. Being first to market with quality, innovative and consumer-focused products is a constant challenge he says can only be met by the firm's commitment to workmanship and its 125 years of experience.

A second risk concerns Triumph's global scale. Its main competitor, Victoria's Secret, may be bigger but it is US-focused. Triumph is the only truly international player; it therefore must leverage that reach to stay ahead of competitors who, says van Engelen, will challenge it with lower cost and lower-quality products in an industry where margins are shrinking because of commodity price rises.

The third challenge is to remain best in class, not just in commercial terms by bringing new products to market, but also in the way Triumph manages itself internally. "This comes back to insurance, finance and risk," van Engelen explains. "What we're doing here in terms of our finance structure and the overall risk management has to be a top-quality approach."

The mitigating advantage that Triumph enjoys is its family ownership. Short lines of communication mean that problems can be spotted and fixed quickly, and van Engelen notes that five generations of owners have pursued the same fundamental mandate: to reinvest in the business.

He also says that it's not possible to have a global mandate for credit risk. Instead he drives home to local subsidiaries the need to assess credit risk and insure where appropriate. These local subsidiaries are held accountable for bad debts, but despite Triumph having many thousands of customers, the recession has not produced any significant increase.

However, he admits: "Life is not always rosy. We have been hit by one bad debt. A major German retailer with a triple-A credit rating and they still went into insolvency and we didn't have any insurance against that. We thought there was absolutely no risk. We got it wrong. However, in the total scheme of things, it was a very small pimple on a smooth surface."

The solvency of Triumph's insurers and their three renowned banks is always on the risk radar. There is, however, one risk area van Engelen doesn't have to worry about: foreign exchange risk. "For me, the biggest differentiator is not necessarily being private or public," he says. "It is about how you manage your cash. There is one big difference between private and public companies, which has implications, and that's the quarterly reporting. The advantage that we have is that we do not have to worry about fluctuating results, quarter by quarter. So we have a bit more flexibility. We do not have to cover for all potential risks and to hedge them over time so that we avoid significant disruption. We save money."

"The translation has nothing to do with the operational health of the company," van Engelen continues. "It doesn't impact my profit margin. It is purely translating operating results from all my subsidiaries into a Swiss franc consolidation report."

The current strength of the Swiss franc has only impacted the 2% of sales the company makes in Switzerland. There is one 'risk' that van Engelen cheerfully admits he would never have suspected when he came to Triumph three years ago. Apparently, when a new colour is introduced to an underwear range, it can affect the all-important fit of a garment. It seems there are some scenarios even an experienced CFO cannot plan for.

Company profile: Triumph International

Triumph International, one of the world's leading manufacturers of lingerie and underwear, is a family-owned company with 36,500 employees worldwide and an annual turnover of CHF2.2 billion in 2010. It develops, produces and markets underwear, sleepwear and swimwear both wholesale and through its own stores for its Triumph, Sloggi, Valisère, and HOM brands.

Triumph began life as a corset manufacturing business in southern Germany in 1886. Founders Michael Braun and Johann Gottfried Spiesshofer laid the foundations for an innovative product policy, coupled with the highest standards of material and workmanship. Triumph rapidly became a pioneer in the transformation of the shaping corset into luxury lingerie.

Having extended its name to Triumph International in 1953, the company subsequently opened subsidiaries on all continents. Today, it has a presence in over 120 countries.