The Role of Finance in Strategy Execution & Business Innovation

March 2016

• Born in Minsk, Belarus. Parents from Ecuador and Germany

• Worked in family mining equipment business as teenager

• Graduated from Elizabethtown College with a major in International Business with a concentration in Finance and Marketing

• Started working for Hershey right out of College

• MBA from Penn State University and CPA, CMA, CFM, CIA certifications

• Roles while working for Hershey:

• Internal Audit (various roles)

• Financial Planning & Analysis Manager, International

• Financial Planning & Analysis Manager, Americas

• Director, Americas Regional Controller

• Director, North America Controller

Ted Delgado’s Background

History of The Hershey Company

Milton Hershey founded his chocolate company in 1894 after selling his caramel business in Lancaster

Milton Hershey founded Trust to manage a boarding school for disadvantaged children (owns 30% of co. & 70% of the vote)

Hershey’s has been focused in chocolate and other confectionary, and North America for most of its history

Key acquired brands: Reese’s, Kit Kat (US only), Cadbury (US only), Twizzlers, Ice Breakers, Pelon Pelo Rico, Brookside, Golden Monkey, Krave (Good-for-you Meat Snacking)

Renewed focus on International expansion started in 2003, when J.P. Bilbrey (current CEO) joined HSY as International VP

As of 2016, Hershey is committed to maintain its confectionary market leadership in North America, sustainably expand its snacking portfolio, and continue to grow in China

Strategy: Always know where you are going

Strategy is the map that guides a business to a clear destination

A good strategy motivates people to move together to find the treasured objective

A good strategy clearly defines What is the destination and Whythe destination is worth the journey

Finance Analysis: Is the destination worth the journey?

Wild Goose ChaseMythical Pot of Gold

Treasure Chest Golden NuggetHIGH

REWARD

NOREWARD

LOWERRISK / INVESTMENT

HIGHERRISK / INVESTMENT

Strategy Execution: Know How & Get There

The right vehicle to get to the strategic destination is key to successful execution

Need the right driversdepending on the

vehicle needed to reach the destination

Enough of the right resources sustain the journey

Keys to Successful Business Execution

OrganizationStructure and clear roles match the right people with the right vehicles to achieve strategic objective

Executional PlanClearly defines how success looks like as the organization progressively achieves key milestones

Business InnovationIncremental Business Innovationto adapt to external/internal reality

and timely Breakthrough Business Innovation enables sustainable business results

Risk Mgmt.Proactively foresee, monitor, and manage risks to the achievement of executional plan and the overall strategic objective

Foresee, monitor, and manage risks

External Risk: Economy, competition, natural disasters

Process Risk: Policies, operating procedures, and supporting systems breakdown impact execution

Financial Risk: Actual results below expectations (ROI, profit margin, net asset value, cash flow) and/or accounting errors impacting investor confidence and company’s value

Compliance Risk: Ethical breakdown and/orlegal, tax, and external reporting non-compliance

STOPStrategy Risk: Strategic objective misaligned with reality and escalation of commitment leads to wrong destination

External Risk

Monitor

• Quarterly/annual monitoring• Additional controls may not be

advisable based on acost/benefit analysis

• Transfer risk when cost is low(e.g., insurance policies)

Low Control

• Implement detective controlsafter cost/benefit analysis

• Monthly monitoring whendetective controls too costly

• Transfer risk when cost is low(e.g., insurance policies)

High Control

• Implement preventive controls

• Perform cost/benefit analysis to determine when detective controls are more appropriate

Medium Control

• Implement detective controls• Perform cost/benefit analysis

to determine the need for preventive controls

• When possible, transfer risk via insurance policies or other third-party arrangements

Risk Management Principles

HIGHFinancial Impact

LOWFinancial Impact LOW

Probability

HIGHProbability

Key to Proactive Risk Mgmt.: Strong Finance Org

• Insights on company’s strategy

• Insights on financial expectations

• Implementation of initiatives

• Actuals vs. expectations

• Risk identification & valuation

• Policy and procedures

• Process and system

implementations

FP&A & Controllers Collaboration

Unified Finance Front Leads to High-Quality Execution & Business Innovation

MarketingDevelop strategic alternatives (including innovation paths) and demand creating initiatives

SalesExecute strategic direction with customers and provide timely feedback on strategic objectives

OperationsExecute operational processes to effectively and efficiently deliver goods/services to customers in line with strategic objectives

External Risk

Financial Risk

Compliance Risk

Process Risk

FinanceFP&A: Forecasting, analysis vs. forecasts,

and financial simulations

Controller: Actual results, analysis vs.

PY, execution of current and upcoming initiatives, and risk management

Inc

rem

en

tal

Be

ne

fits

TIME

Business Innovation Essential to Sustainability

1 2 3

New ideas for new products, services, systems, technology, processes, business models, partnerships or

any other new ways to achieve incremental business benefits

4 5

Business Innovation Funnel

ISOLATED IDEA GENERATION

ROUGH INNOVATIVE CONCEPT

EXECUTIONAL PLAN

CROSS-FUNCTIONAL IDEA DEVELOPMENT

DETAILED INNOVATIVE CONCEPT

EXECUTE LAUNCH

MANAGE POST-LAUNCH EXECUTION

Culture of Business Innovation

Risk Taking DecisiveProactive

Resourceful Trial & Error

Perseverant

Cross-functional Agility

Breakthrough InnovationUnprecedented new ways to achieve and accelerate value-added business benefits

SystemsProducts Services

Technology Processes Business ModelsPartnerships

Incremental Innovation

Benefits resulting from incremental innovation

Enhanced new ways to derive benefits build-upon break-through innovation or existing business model

Incremental innovation accelerates the benefits and/or increases the life-span of breakthrough innovation

Finance Leadership in Strategy Execution & Business Innovation Key to Faster & Sustainable Results