going global - what treasury needs to know

April 8, 2016

Globalizing your treasury operation

© 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 2

Ehren Moeller

EY Global Treasury Services

[email protected]

Bob Stark

Kyriba Corporation

[email protected]

@treasurybob

Today’s speakers

mailto:[email protected]

mailto:[email protected]


The views expressed by the presenters are not necessarily those of Ernst & Young LLP.

These slides are for educational purposes only and are not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

Disclaimer


1) Setting the stage– Expectations– Requirements– Who’s involved

2) Global treasury initiatives– Treasury Structures– Global Visibility and Payments– Cash and Liquidity Structures & Programs– Risk Management– Policies, Procedures & Controls

3) Tips and Tricks

Agenda


Treasury evolution – new expectations and requirements

Traditional role Additional responsibilities

• Cash management• Back office processing• Funding and investing• Execution of hedging program• Intercompany trade and funding management• Post-transaction support (integrations and carve-

outs)

• Management of enterprise exposures to protect the company

• Supporting initiatives to increase market share, reduce costs, improve capital allocation

• Supply chain and working capital management• In-house consultant and agent of change• Balance sheet restructuring

• Evolve into analytical hub and agent of change that supports business decisions• Develop an agile organization that can quickly react to the changing business cycle• Streamline, standardize and automate treasury processes to shift scarce resources from administrative and operational tasks to

value-add activities• Implement appropriate technology to achieve a world-class treasury function that is agile and scalable in responding to

evolving business needs

Evolving treasury requirements


• Growth strategy Organic growth that allows more time to plan and develop a global

model Growth through M&A requires planning and proactive initiatives to

support an accelerated strategy

• Cash optimization Cash mobilization to support regional business initiatives Minimization of reliance on short-term funding

• Risk mitigation External integration points that create payment and data fraud risks Identification of transactional exposures Lack of standardization and segregation of duties that creates

opportunities for manual error or fraud

• Internal reorganization

What is driving change?


Internal audit

Corporate touch points for a global treasury

• Treasury transaction implications• Legal entity requirements

• Fraud prevention• Policies and procedures

• Working capital management• Payment centralization

• Connectivity• Counterparty risk

• Supporting business funding needs• Managing local exposure

Tax

Controller

External

Regional business


Going global – where to start?

Global visibility and

payments

Policies, procedures and control

Cash and liquidity

structures

Riskmanagement

Treasury structures


• Structure of the treasury team may change — organically or by design Representation in local markets Time zone and language support Shared services

• If team is regionalized or decentralized, must: Provide centralized visibility and control over treasury ops Standardized policies/procedures Central technology platforms (treasury management system

(TMS), file sharing)

Treasury structure


Building a treasury center – benefits and consideration

Quantitative Qualitative

• Improve yield return and net interest income

• Increase tax efficiency

• Raise operational efficiency through economies of scale

• Reduce counterparty exposure

• Gain visibility, access and control of liquidity positions across multiple countries

• Improve governance and control

• Standardize risk management methodologies and investment policies

• Increase global and regional visibility of liquidity positions across multiple countries

• Centralize financial risk to increase control and efficiency

• Appropriate treasury technology to support the redesigned treasury structure

• Access and visibility to real-time data (e.g., exposures, cash, bank accounts and investments)

• Deployment of the resources needed to manage the operational tasks associated with the process

Realization of ITC benefits is contingent on the following dependencies:


Today In the future?

Decision support

Transaction processing

Control

Reporting

Reduction in treasury

operating costs varies

by company.

Reducing the time that treasury and the BUs spend on transactional activities to increase their ability to focus on strategic issues

Decision support

Transaction processing

Control

Reporting

Improve effectiveness

• Shift resourcing mix toward higher-value activities (e.g., business performance management, planning, reporting)

• Improve internal control effectiveness

• Drive focus on service and quality

• Enable continuous process improvements

• Enable delivery of consistent and measurable service levels

Improve efficiency

• Reduce operations cost by:

• Eliminating redundancies across organizations

• Optimizing processes through standardization and leveraging economies of scale and skills

• Instituting ability to leverage wage and real estate cost arbitrage

• Reduce process errors

Improve organizational flexibility

• Provide ability to meet demand variance

• Provide ability to quickly integrate acquisitions and divestitures

Qualitative benefits of treasury centralization

The ovals above represent the level of value the activity contributes to the business

Does a shared services center make sense?




payments


Cash and liquidity

structures

Riskmanagement

Treasury structures


How to obtain global visibility

Connect to all of my banks via:

Banking partner

SWIFT (directly)

SWIFT (via service bureau)

Direct connections to banks

Country protocols (e.g. EBICS, Zengin)

Tip: usually, a combination is best to reduce total cost of ownership.

Global visibility



Develop global cash forecast:

Identify the right people (e.g. regional controllers)

Apply appropriate models (e.g. extrapolate historical flows)

Analyze variances and implement feedback loop to improve

Global visibility



Visibility allows you to answer:

Do I have too few or too many banks?

Do I have too few or too many bank accounts?

Am I able to mobilize cash efficiently?

Am I educated on the tax implications and local regulations in each region (e.g. is notional pooling permitted?)?

Global visibility


• Three options for paying internationally:

International payment (w/ spot trade or bank managed exchange)

Local bank payment (from a local cash pool)

Non-bank payment (outsourced, blockchain peer to peer, etc.)

As global activity increases, increased need to move away from international wires

International payments


• As payment activity increases, establishing shared services center (SSC) becomes more attractive

The payments-on-behalf-of is a common model in SSCs

SSC operates a payment factory, centralizing all outgoing corporate payments

This requires intercompany transactions to be made on the back of each payment

It demands flexible bank connectivity

International payments – shared services




payments


Cash and liquidity

structures

Riskmanagement

Treasury structures


Effective BAM practices increase in importance when global

• FBAR Required to track US signers/approvers from 2010–present

• Fraud prevention Without visibility and control over accounts,

bad things can happen

• Bank (and bank fee) optimization Need visibility to know cost vs. use of accounts and

relationships to make sound keep/close decisions

Bank account management (BAM)


• Globally, need physical (rather than notional) cash pooling Notional pooling permitted only in certain regions (e.g. Europe) Unlikely to use same bank across all pooling regions

• Often separate pools by region w/ rollup to one global pool Common to have North America, Europe, Asia China and India tend to be carve-outs due to local regulation

• Demand for cash mobility (and tax) will determine balances kept within each pool vs. swept “home”

Global cash pooling


• Multi-lateral netting = to determine net currency positions for each subsidiary

• Can be internal and/or external

• FX typically at netting center

• Benefits:

Minimize payments

Reduce FX transactions

Eliminate transaction costs

Multi-lateral netting

Netting Center

Subsidiary

Subsidiary

Subsidiary

Subsidiary




payments


Cash and liquidity

structures

Riskmanagement

Treasury structures


Globalization = many new risks

• People risk – finding/retaining talent

• Regulatory risk – new compliance required

• Financial risk – currency and liquidity risk

• Liquidity risk – optimizing cash balances and mobilizing liquidity

• Counterparty risk – new banks, new suppliers, new customers

• Sovereign risk – new countries offering new risk profiles

Risk management


• The moment we leave the US, more regulations!• EMIR• SEPA• FBAR• FATCA• FTT• BEPS• Basel III• Country-specific (e.g., China)

Regulatory changes


Regulation Description

IFRS 7/9/13 The IFRS versions of FAS 133 and 157. Risk management compliance for valuations, hedge accounting and credit risk.

EMIR (Europe)Trade reporting and transparency where financial trades must be

documented and reported to a trade repository.

SEPA (Europe)Standardized formats for payments made within the eurozone. Supports

credit transfers and direct debits.

FBAR (US)IRS resolution for foreign bank account reporting. Must report

signatories/approvers and max balances for all non-US accounts (compliance 2016 but reporting period = 2010–present).

Basel IIIRegulates bank’s capital structure, including composition of balance sheets. Very high indirect effect on corporates, especially for interest

earned on deposits and borrowing costs.

FTT (Europe)Financial transaction tax. Requirement to pay increased taxes on all

financial transactions (applies to only largest tier of corporates).

Regulatory changes


Currency risk – decisions to be made

• Balance sheet and/or cash flow hedging?

• Hedging policy – time horizon, % of exposures, types of instruments?

• Hedging centrally or locally? (combine with cash pooling and/or netting)

• Hedge accounting or not hedge accounting?

Risk management


Liquidity risk – optimizing cash

• Need to balance: maintaining liquidity for each region vs. consolidating for centralized use

• Strong cash forecasting will help “end the argument”

• Repatriation of cash: need to prepare for cash balances allocated to corporate actions (dividends, repurchase, acquisitions)

Risk management


Counterparty risk – financing suppliers

• Globalization = more unknowns and risk in value chain (suppliers and customers)

• Potential to leverage balance sheet to finance suppliers

• Direct = using your own cash for invoice discounting

• Indirect = leveraging bank relationships for supply chain finance

• Vice versa possible: can finance customers too

Risk management




payments


Cash and liquidity

structures

Riskmanagement

Treasury structures


• Must update (or create!) treasury policies, operational controls and KPI reporting for the global organization

• Lack of standardization – opportunity for mistakes or fraud

• Lack of visibility – unable to make effective decisions

• Difficult to grow with business – risk falling behind if not efficient or scalable

Policies, procedures and controls


• Must update (or create!) treasury policies, operational controls and KPI reporting for the global organization

Examples

• Bank accounts – not aligning signatories to HR systems; differing sunset procedure frequency

• Payments – using email and bank portals in Asia vs. a TMS in USA

• Hedging – not specifying multiple bid tracking in local regions

Policies, procedures and controls


• Identify global requirements by treasury function

• Determine preferred approach• Global vs. regional• Tax benefits• Local regulatory requirements• Resourcing• Technology support

• How will approach support local business

• Inventory business and treasury requirements

• Benefits analysis• FTE cost of manual intervention• Actual cost (bank fees, FX spread, etc.)• Technology and implementation cost• Regional treasury center cost

How will my approach meet the organizational need?

Feasibility Business case


Vendors/ customers

Cash mgmt.banks

Creditbanks

Investingbanks

FXbanks

Cash pooling

structure

CorporateHQ

In-house bank

Sub 1 Sub 2

Sub 3 Sub n

Externalfunding

Externalinvestments

Internal FXfunding

Netting andpayments

Intercompanyfunding

Physical/notional pool

Net externalFX hedges

Othertransactions

Enab

ling

tech

no

log

yEnab

ling

tech

no

logy

Enabling technology


Treasury operating model considerations

• How cash flow forecasting and variance analyses will be conducted to achieve required working capital targets

• Risk appetite of the company and appropriate risk management strategies to protect earnings and cash flow

• Staffing requirements (both headcount and skills)

• Selection of banks at key regional vs. local relationship

• Required changes to governance, policies and procedures

• Ownership structure of treasury activities (e.g., treasury, shared services, other finance functions)

• Degree to which treasury activities are centralized (e.g., global, regional, local)

• Outsourcing or co-sourcing of select treasury activities

• The desired level of treasury automation

• What liquidity structures are desired (e.g., notional vs. physical pooling, in-house bank, payment factory, multi-lateral netting)

What are critical changes?

How will these services be delivered?

How will future state services be delivered?

What will be the bridge strategy between current and future state?


• Treasury structure Centralized, regionalized, decentralized

Accommodation for time zones and languages

Appropriate staffing

• Regional differences Business model, supply chain and liquidity needs

Banking regulations and tax implications

• Visibility Balancing need for visibility with cost for bank connectivity

Forecast effectively to optimize cash balances per region

• Risk management FX program to manage currency risk

Liquidity risk – different approaches than domestically

Business continuity plans

Summary: considerations for a global treasury


Thank You For Attending

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