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© 2012 Treasury Strategies, Inc. All rights reserved. Presented To Presented By At a Crossroads: Defining your Future, and Leveraging the Potential of.

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Presentation on theme: "© 2012 Treasury Strategies, Inc. All rights reserved. Presented To Presented By At a Crossroads: Defining your Future, and Leveraging the Potential of."— Presentation transcript:

1 © 2012 Treasury Strategies, Inc. All rights reserved. Presented To Presented By At a Crossroads: Defining your Future, and Leveraging the Potential of Treasury 3.0 SM September 2012 Dave Wexler Principal

2 Agenda Assess the Current State of your Treasury Create a Vision for your Future State Treasury Define and Execute a Roadmap to Achieve Treasury 3.0 2

3 Why a Treasury Assessment? Treasury is the Financial Nerve Center 3

4 Treasury 3.0 ® : Corporate View 4 Treasury Operations is an immature, fragmented or informal function, characterized by manual processes. Treasury centralizes key roles, improving transparency and controls. There is greater access to data and computing power and consolidation of competency. 1 st Generation High Treasury is a strategic advisor, more closely integrated with business units, supporting globalization, efficiency, trading partner/supply chain integration and greater sophistication in risk/return optimization. DataIntelligence 2 nd Generation 3 rd Generation Information Low

5 Data vs. Intelligence Technology/Data Architecture Full Automation & Integration Narrow Executional Focus Strategic Advisory Expanded Risk Responsibility Scope of Influence 2.0 3.0 5

6 Why a Current State Assessment Can’t Wait The recent financial crisis is a call to action for Treasury 3.0 ®. The first step is to assess your current state. In the face of uncertainty, 3.0 helps you stay in control. InternalExternal Cash flow Working capital Counterparty risk Investment Debt Fraud Regulation Economy Government action Banking turmoil Political risk You CAN control theseYou CAN assess the impact of these 6

7 Key Assessment Elements Policies & Procedures Do policies support the goals of the organization, clearly communicate permissions and account for unique situations? Organizational Structure Does our organizational structure effectively support the business? Bank Account Structure Are banking relationships and bank account structures leveraged to their potential? Cash Flow & Liquidity Do we know where our cash is and can we effectively sustain operations? Technology Treasury technology must reflect an organization’s need to be extremely nimble and adjust quickly to the changes demanded by market conditions. 7

8 Key to Success Do policies support the goals of the organization, clearly communicate permissions and account for unique situations? Policy Considerations: Investment Debt FX Financial Risk Management Counterparty Risk Management Bank Account Administration Business Continuity Policy Elements: Instrument Types Monetary Limits Durations Credit Ratings Concentration Limits Defined Review Periods 8 Assessment: Policies & Procedures

9 Key Assessment Indicators Timing of last policy review What has transpired since the last review? Authorization Access/Distribution Sign-offs Benefits Procedural support increases controls -Segregation of Duties Regulatory Compliance Standardization Risk Mitigation 9 Assessment: Policies & Procedures

10 Key to Success Does our organizational structure effectively support the business? Assessment: Organizational Structure Organizational Considerations Recent/Future Actions - Mergers/Acquisitions - Spin-offs Staffing - Resource levels - Experience - Knowledge/Training - Authority Geographic Footprint - Tax Implications - Regulatory 10

11 Assessment: Organizational Structure Key Assessment Indicators Treasury Mandate Staffing -Roles and Responsibilities -Performance Metrics Business Unit/Subsidiary Roles Collaboration with Tax Department -Timing of Review -Repatriation Strategies -Operational Support Regulatory Awareness Local Relationships Communication Benefits Financial -Tax Savings -Funding Cost Reduction Employee Morale Compliance 11

12 Key to Success Are banking relationships and bank account structures leveraged to their potential? Assessment: Bank Account Structure Bank Account Considerations Materiality Visibility Complexity - Number of Bank Relationships/Accounts - Drivers Administration Oversight Fee Analysis Relationship Review 12

13 Assessment: Bank Account Structure Key Assessment Indicators Optimized Structure Effectively Supporting Business -Identify Redundant Services -Duplicative Bank Accounts Review of Bank Relationships -Periodic: RFP for Services -Geographic Fee Analysis -Frequency -Mechanism -ECR Oversight -Centralized/Decentralized Benefits Costs Efficiency Control/Risk Mitigation Income (Investment, etc.) 13

14 Assessment: Cash Flow & Liquidity A typical billion-dollar company spends approximately $27 million annually for unnecessary working capital and inefficient processing functions because they lack visibility into the financial supply chain and receivables.* *Source: Killen Associates Global Visibility The capability of an organization to have timely and comprehensive information on all positions and exposures. 14

15 Key to Success Do we know where our cash is and can we effectively sustain operations? Cash & Liquidity Considerations Cash Positioning Process –Mechanisms –Sources Cash Flow Forecasting –Methodology Accounts Receivable/Payable –Mechanisms: External –Systems: Internal Cash Concentration/Pooling Intercompany Transactions/Loans –Purpose Credit Access Assessment: Cash Flow & Liquidity 15

16 Key Assessment Indicators Cash Positioning -Automation -Consistency -Completeness -Timelines Cash Flow Forecasting -Precision -Relevance (Timing) -Consistency Accounts Receivable/Payable -Timing -Velocity Cash Concentration/Pooling -ZBA Structures -Physical/Notional Pooling Intercompany Transactions -Settlement Timing -Currency -On Behalf Of Credit Access -Planning/Coordination with Corporate Finance -Syndicate Participants -Sources 16 Assessment: Cash Flow & Liquidity

17 Benefits Optimize idle cash balances Lower borrowing costs Lower cost of capital Netting Opportunities Greater investment income More favorable FX rates Early warning system Assessment: Cash Flow & Liquidity 17

18 Assessment: Technology Key to Technology Success Treasury technology must reflect an organization’s need to be extremely nimble and adjust quickly to the changes demanded by market conditions. Technology Considerations System Types -Older Treasury Workstation Systems (TWS) -Bank Online Systems -Spreadsheets -Best-of-Breed License expiration, migration, “sunset” Upgrade timing Deployment Mode Costs Integration/Interfaces Enterprise accessibility Information workflow Controls 18

19 Assessment: Technology Key Assessment Indicators Percentage of Manual Processes Timing of Last Upgrade Interfaces to Promote STP -Banking -ERP (GL, AR/AP) -Trading System Access Auditability Security Reporting Costs -Internal -3 rd Party Benefits Enable Treasury Best Practice Automation + Efficiency Standardization STP Controls Scalability 19

20 Treasury Management System Functions used: Bank Polling Cash Positioning Cash Forecasting Bank Account Administration Payments (& Payment Factory) Short-term Investments and Debt FX, Commodities & Risk Management LT Debt & LT Investments In-house Bank & Intercompany Loans Multilateral Netting Accounting & Reconciliation Treasury Management System Functions used: Bank Polling Cash Positioning Cash Forecasting Bank Account Administration Payments (& Payment Factory) Short-term Investments and Debt FX, Commodities & Risk Management LT Debt & LT Investments In-house Bank & Intercompany Loans Multilateral Netting Accounting & Reconciliation Analysis & Pricing Bank Account Administration In-house Banking, Intercompany Loans & Netting Payment Factory Bank Communication via SWIFT Financial Transactions Accounting & Reconciliation Centralized, Integrated & Real-Time System Dashboard & Reporting Technology & Treasury Applications 20

21 Create a Vision for Your Treasury Organization’s Future 5. Roadmap Planning & Development 4. Reporting Protocols 3. Opportunities for Improvement 1. Gap Analysis 2. Benchmark Reporting 21

22 1.Gap Analysis Controls Deficiencies Material Weakness Process Inefficiencies Inconsistencies Completeness Creating the Future Vision: Essential Elements 22

23 Creating the Future Vision: Essential Elements 2.Benchmark Reporting General Best Practice -Operation/Function Industry Best Practice Substantiated and Credible Best Practice Standards -Source -Metrics Local/Regional Practices Regulatory Implications 23

24 Treasury FunctionMetric Cash ManagementBank fees vs. budget and historical trends Number of bank accounts, historical trends Days payables outstanding (DPO) Accuracy of cash forecast Transaction error rate “Trapped” cash balances Foreign ExchangeTrade performance vs. market rate at time of execution % exposure to counterparties Number of FX spot transactions per month % hedge effectiveness InvestmentsYield and return vs. established benchmarks Trade performance vs. market rate at time of execution % exposure to counterparties and issuers DebtTotal short-term debt outstanding as a percentage of credit availability CP rate vs. Federal Reserve Non-Financial CP rate for A2/P2 companies WACC Timing of cash call requirements versus uses of internal time Interest expense vs. budget and historical trends 24 Sample Treasury Metrics

25 1.Formally define and document global Treasury policies and procedures: -Dependent upon business: Debt, Short-Term Investments, Bank Account Administration, Cash Forecasting, FX Risk Mgt. 2.Policies should be approved by company’s Board of Directors. 3.Create written global treasury procedures, tailored to individual countries to reflect regional/country nuances and systems 4.Formally document a Treasury Disaster Recovery Plan: -Periodically test plan to verify its effectiveness. 5.Continue to document and refine country treasury process maps Guidelines: Policies and Procedures 25

26 3.Opportunities for Improvement Identified Quantified Fundamentals -Costs -Efficiencies -Strategic -ROI -FTE 26 Creating the Future Vision: Essential Elements

27 4.Reporting Protocols Consistent Detailed Support Actionable Realistic Metrics/Statistics Executive Presentation 27 Creating the Future Vision: Essential Elements

28 5.Roadmap Planning & Development Prioritization Dependencies Timelines Resources Milestones Risks 28 Creating the Future Vision: Essential Elements

29 The Treasury Roadmap A treasury roadmap enables organizations to visualize: Interdependencies of tasks Critical assets within the organization Required skills, competencies and technology 29

30 Roadmap Benefits Provides focus and directionProvides management control Links tasks to needs and milestones Visually represents goals to employees Improves departmental communication Identifies issues and interdependencies 30

31 The Treasury Roadmap Process Preliminary Design Setting the framework, vision, timing & organizational goals Roadmap Development Priority Sequencing High-level timeline Follow-up & Implementation Roadmap Update 31

32 Distribution of time spent on tasks in a “typical” Treasury department Analytical (30%) Operational (40%) Strategic (30%) Distribution of time spent on tasks in a “best-practices” Treasury department Operational (80%) Analytical (15%) Strategic (5%) Operational to Strategic Transition 32

33 Never before has Treasury’s contribution to an organization’s survival been so critical: Strategic focus Rapid and comprehensive response Business Continuity Planning (“BPM”) Proactive Plan Integrated data Impact of uncontrollable forces Efficiency Communication Control Enterprise Support Achieve Treasury 3.0 ® 33

34 About Treasury Strategies, Inc. Who We Are Treasury Strategies, Inc. is the leading treasury consulting firm working with corporations and financial services providers. Our experience and thought leadership in treasury management, working capital management, liquidity and payments, combined with our comprehensive view of the market, rewards you with a unique perspective, unparalleled insights and actionable solutions. What We Do Corporations We help you maximize worldwide treasury performance and navigate regulatory and payment system changes through a focus on best practices, technology, liquidity and controls. Treasury Technology We provide guidance through every step of the technology process – which includes creating a roadmap, selection, implementation and optimization. Our expert approach will uncover opportunities to optimize the value of your treasury through fully integrated technology solutions. Financial Services Our experience, analytic approach and benchmarks provide unique consulting solutions to help you strengthen and grow your business. www.TreasuryStrategies.com/ content/networking-communities @TreasuryStrat Accreditations Connect with Us Locations Chicago London New York 34


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