Defining World-Class Cash Management: Part I Citi Treasury Roundtable Series Ron Chakravarti, Managing Director, Citi Bryan Richardson, Senior Director, The NeuGroup
March 2012
Introductions Ron Chakravarti (Speaker) Managing Director, Head, Global Solutions Management, Liquidity & Investments Citi Global Transaction Services Email:
[email protected] Tel: +1.212.816.6909 Ron leads a global team responsible for the design and delivery of integrated global treasury solutions for Citi’s corporate and financial institutional clients. He has been with Citi for five years. His prior experience includes positions in treasury consultancy; transaction banking strategy/business development and product management; and corporate banking while based in Asia, Europe, and the US.
Bryan Richardson, CTP (Speaker) Senior Director, Peer Knowledge Exchange The NeuGroup Email:
[email protected] Tel: +501.217.9925 Bryan Richardson joined The NeuGroup in July 2007 as director of peer groups to support the growing number of peer groups facilitated by the company. In this role, he works at expanding the universe of groups and member companies in addition to overseeing the relationship aspects and planning and research process for several existing groups. He also supports the research and planning process of other peer groups and authors articles for The NeuGroup’s flagship newsletter, International Treasurer. Prior to joining The NeuGroup, Mr. Richardson has experience in cash management, treasury and treasury consulting at a variety of institutions.
Background Last month we reviewed key considerations for Treasury in 2012, which include greater alignment with the businesses, gaining operational flexibility and achieving best in class risk management
1
Manage through the Euro Crisis
2
Respond to accelerating changes in regulations and tax
Get engaged, and add value to the Supply Chain
3
4
5
6
Drive for operational Treasury best practice Extend the credit risk management discipline Leverage (or make case for) technology investment
Trading
Legal and Tax Structure Commissionaire Limited Risk Distributor Toll/Contract Manufacturer
Risk Management
Treasury/Risk Management Processes RTC In-house Bank Legal entity
Treasury
Process Execution
Corporate Objectives Liquidity Structure and Forecasting
AP/AR Processes
SSC Netting Center Payment Factory ―… on Behalf of …‖
Working Capital Management
While each company’s Trading, Treasury, and Working Capital model will determine specific 2012 priorities for Treasury… …a common theme is recognition of the need to align more closely with working capital stakeholders, while maintaining visibility of evolving trading models and proactively addressing impacts.
1
The World Class Principles Project Citi, The NeuGroup Global Cash and Banking Group, and 26 member companies (led by a core team of 6) conducted a year-long program to define world class principles for treasury cash management activities and provide a set of benchmarks that companies can use to measure performance. The project was cofacilitated by Citi’s Global Treasury Advisory team and used their Citi Treasury Diagnostics tools. Defining World-Class Cash Management Part I
Structural / Organizational
Processes
2
Organizational Structure
Bank Relationship Management
Treasury Responsibilities
Accounting
Talent Management
Policies and Procedures
Part II Technology End State
Bank Account Management
Reporting / Dashboards
Payments
Intercompany Txns / IHB
Dashboards
Cash Positioning
Dividend Repatriation
Cash Visibility / Pooling
Who is The NeuGroup? The NeuGroup is an independent research and publishing company dedicated to the exchange of knowledge among treasury and finance professionals through two mediums.
Newsletter: Launched in 1994, our flagship monthly newsletter, International Treasurer (www.itreasurer.com) makes us a trusted advocate for global finance practitioners. Peer Groups: The peer group model began in 2001 with the launch of Tech20, a group of treasurer’s in the technology industry, which served as the start of a network of Fortune 500 practitionerdriven member forums committed to sharing knowledge and experiences with their peers.
3
– Current peer groups
14
– Current number of member companies
160
– Current number of members
280 +
What is the Global Cash and Banking Group (GCBG)? A group of more than 25 senior treasury professionals who meet twice per year to share ideas, challenges and solutions within an informal, yet structured environment.
3M*
Cargill*
Dr Pepper Snapple*
Itron*
Accenture*
Celgene*
eBay*
Kimberly-Clark*
Agrium*
Chiquita Brands*
Eli Lilly*
Merck*
Altera
Cooper Industries*
Genentech
MoneyGram*
Amgen*
Costco*
Google*
Nike
Applied Materials*
Dell*
Hasbro*
Oracle*
Bechtel *
Diebold
Herbalife*
Research In Motion*
* World Class Research participant
4
World class project core team member
What is Citi’s Treasury DiagnosticsSM? Treasury Diagnostics is a global treasury benchmarking program created by Citi. Participants, which include multinational corporations from around the world, are able to benchmark their treasury operations vs. the Best In Class and identify potential opportunities for improvement.
Benchmark Six Pillars of Treasury Operations Liquidity Management
Working Capital Management
Risk Management
Subsidiary Funding and Repatriation
Policy and Governance
Systems and Technology
Identify Where You Stand Relative to Peers—Learn What Counts as Best in Class
Benchmarks Performance
Policy & Governance
Benchmarks
Relative Performance Detail
Risk Management
+/-
My Score My Score
2.6
My Relative Performance
2.6
Systems & Technology
Liquidity
Process Area
Peer Group Peer Group
1.7
UniverseUniverse 1.0 Working Capital
Risk Management
2.41.72.9 2.4 3.6 2.9
3.64.3
4.3
1.0 3.0 2.4 2.4 3.6 3.0
3.6 4.9
4.9
Against Peer Group
Against Universe
Liquidity/funding risk
Worse
Worse
Interest rate risk
Worse
Worse
Foreign Exchange (Transactional)
Better
Better
Sub Funding & Repatriation
Winner, Celent Model Bank Award
5
Winner, Innovative Product
Silver Winner, Solution of the Year, Treasury and Risk Alexander Hamilton Awards
2. Project Highlights and Outcomes
Project Highlights and Outcomes Highlights Utilized a survey process of over 150 questions Over 20 companies actively participated of which 6 were on a core leader team Two phases over the course of a year Outcomes
Two parts: – Foundational areas: e.g., organizational structure, policies and procedures, technology and talent management – Processes-centered areas, e.g., cash positioning, cash forecasting, liquidity management, and bank account management
15 Treasury operations categories, 72 principles to define world class treasury operations Principles vs. Practices – intended to apply to ―all of the above‖ companies
6
Organizational Structure - Highlights Summary Statement - As companies expand globally the need to organize effective treasury operations to support remote areas of the business increases. For many MNC’s, this means winning greater efficiency in developed markets so that it can deploy additional resources in developing markets, where efficiencies are more difficult to achieve.
Principles: Standardize operations first then evaluate additional locations
Centralize and align cash management to the degree necessary depending on organizational structure, geographical locations, and local on-the-ground needs Minimize the number and location of treasury centers as much as possible without compromising operational efficiency and timeliness. This minimizes both expense and points of operational coordination while ensuring operational optimization Seek to extend operations at existing SSCs to capture efficiencies and benefits such as availability of a broader talent pool and better integration with operations. Independent treasury centers may be warranted and necessary, in lieu of or following co-location at an SSC
7
Organizational Structure – What Project Participants Said How many Treasury Centers do you have, where HQ counts as 1?
1
36%
2
23%
3
9
32%
4
5%
5
5%
Treasury Responsibilities - Highlights Summary Statement - Treasury touches and is impacted by many areas within a company and obviously can’t control everything. It should, however, at least try to minimize negative impacts by building influence in areas that it can’t control. This requires treasury to take a hard look at the tasks being performed and to determine if they are owned by treasury and if they are not owned how much influence it should have.
Principles: Cash management activities are defined as ―owned‖ or ―influenced‖ and periodically rationalized to avoid being overburdened by non-treasury or non-strategic activities Standardized operational cash management activities are conducted outside corporate treasury, either at a treasury center, a shared service center, or by local in-country staff, leaving corporate staff with more resources for managing strategic activities All policy decisions are initiated, or at least approved by, corporate treasury
10
Treasury Responsibilities – What Project Participants Said Where is cash operations / liquidity management performed in your organization?
Performed at Head Office
73%
Performed in a Treasury Center
64%
Performed in a Regional SSC
14%
Performed Locally in Country Treasury Doesn’t Manage This Function
12
23%
0%
Accounting - Highlights Summary Statement - The big issue around treasury accounting is ―who should own it‖, which can be a surprisingly complicated matter to consider. Expertise around actual transactions clearly resides with treasury, which typically loathes being involved with accounting, while expertise around accounting rules generally resides with accountants.
Principles: Treasury does not ―own‖ treasury accounting itself, but partners with the accounting team to foster good relations and ensure full understanding of treasury transactions Treasury actively supports the purchase and use of tools that provide maximum automation and minimal errors to accounting activity
13
Accounting – What Project Participants Said How automated is your treasury accounting process?
STP (Push a button and create a report with automated feeds from all related areas
33%
Semi-Automated (need manual input along with automated reporting)
Manual (need to manually pull info from various sources and inputs and generate spreadsheet)
15
39%
23%
Talent Management - Highlights Summary Statement - Talent and technology are treasury’s two biggest assets, and because they are generally in scarce supply they must be carefully managed. A world-class treasury operation focuses on various methods for recruiting, developing, and rewarding treasury personnel as well as different types of monetary and non-monetary incentive programs.
Principles: Certifications, participation in media articles, speaker opportunities and other possibilities for personal development are supported and encouraged Treasury and non-treasury rotational opportunities, either formal or informal, are supported and encouraged for personal development and career management Non-monetary reward programs such as flexible work hours and telecommuting programs are supported and encouraged to create and maintain employee retention and engagement
16
Talent Management – What Project Participants Said Do You Have a Rotation Program for Treasury Employees?
No Program
55%
Yes, Informal Program
Yes, Formal Program
18
41%
5%
Technology End State - Highlights Summary Statement - Treasury technology is to support efficiency with automation (STP) and decision support. But treasury needs to pursue an end-state that their organization can support and maintain effectively. This can be evidenced by continually driving to minimize the number of core platforms, supplemented by "best of breed" special-purpose applications where necessary.
Principles: A global single instance of a treasury management system (TMS) and ERP is established or in process Supplementing the single instance TMS, best of breed systems are incorporated into the TMS to allow for the highest level of STP Unique special-purpose software products are minimal, automated and standardized across all users STP and full automation exists for at least 75 percent of cash management activity processes A world class treasury has dedicated IT support
19
Technology End State – What Project Participants Said How Long Do You Think it Will Take to Achieve Your End-state Vision?
Less than 1 Year
18%
2-3 Years
55%
4-5 Years
More than 5 Years
21
18%
9%
3. Conclusions
Take-Aways The principles are intended to provide a roadmap by which any company can measure status and progress. By focusing on principles, the results should apply to most companies and market environments.
With multinationals facing significant shifts in patterns of growth, any treasury organization seeking to be world-class must become efficient in how it manages routine cash processes, so that it can focus more attention on supporting the businesses generating the cash. Becoming world-class is not a one-time endeavor. All organizations should look to regularly benchmark cash management activities to see where they stand relative to peers, define their end goal, and set forth the milestones and acceptable time frames to reach them. Gaining a fuller understanding of the principles, and their application in various circumstances is best done through candid discussions with peers – those in the same industry, as well as those engaged in other types of businesses. Service providers can help too, as they serve as clearing houses for the best practices they see with their customers.
Acknowledgements We thank all members of the Global Cash and Banking Group for their collaboration on the project and for allowing us to share highlights.
Special thanks to the Global Cash and Banking Group core team members from Bechtel, 3M, Dell, Kimberly Clark, Merck, Cooper Industries, eBay, and Eli Lilly. Their hard work in driving the research process and subsequent analysis and in infusing the interpretation with the perspectives of corporate treasury practitioners resulted in practical and meaningful takeaways for other practitioners.
22
Resources
Coming Soon! Defining World-Class Cash Management : Part II - Tactical & Process Principles (Thursday April 26, 11:00 – 12:00 ET)
Project Highlights – To be Sent to Registered Participants World Class Cash Management Principles: Highlights from the Collaboration of The NeuGroup’s Global Cash and Banking Group and Citi. March 2012
Resources www.itreasurer.com http://www.transactionservices.citigroup.com/transactionservices/home/tts/corp/liquidity/index.jsp
23
IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or relied upon, by you for the purpose of avoiding any tax penalties and (ii) may have been written in connection with the "promotion or marketing" of any transaction contemplated hereby ("Transaction"). Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor. Any terms set forth herein are intended for discussion purposes only and are subject to the final terms as set forth in separate definitive written agreements. This presentation is not a commitment to lend, syndicate a financing, underwrite or purchase securities, or commit capital nor does it obligate us to enter into such a commitment, nor are we acting as a fiduciary to you. By accepting this presentation, subject to applicable law or regulation, you agree to keep confidential the information contained herein and the existence of and proposed terms for any Transaction. Prior to entering into any Transaction, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting characterizations and consequences of any such Transaction. In this regard, by accepting this presentation, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any Transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice (and any risks associated with any Transaction) and our disclaimer as to these matters. By acceptance of these materials, you and we hereby agree that from the commencement of discussions with respect to any Transaction, and notwithstanding any other provision in this presentation, we hereby confirm that no participant in any Transaction shall be limited from disclosing the U.S. tax treatment or U.S. tax structure of such Transaction. We are required to obtain, verify and record certain information that identifies each entity that enters into a formal business relationship with us. We will ask for your complete name, street address, and taxpayer ID number. We may also request corporate formation documents, or other forms of identification, to verify information provided. Any prices or levels contained herein are preliminary and indicative only and do not represent bids or offers. These indications are provided solely for your information and consideration, are subject to change at any time without notice and are not intended as a solicitation with respect to the purchase or sale of any instrument. The information contained in this presentation may include results of analyses from a quantitative model which represent potential future events that may or may not be realized, and is not a complete analysis of every material fact representing any product. Any estimates included herein constitute our judgment as of the date hereof and are subject to change without any notice. We and/or our affiliates may make a market in these instruments for our customers and for our own account. Accordingly, we may have a position in any such instrument at any time. Although this material may contain publicly available information about Citi corporate bond research, fixed income strategy or economic and market analysis, Citi policy (i) prohibits employees from offering, directly or indirectly, a favorable or negative research opinion or offering to change an opinion as consideration or inducement for the receipt of business or for compensation; and (ii) prohibits analysts from being compensated for specific recommendations or views contained in research reports. So as to reduce the potential for conflicts of interest, as well as to reduce any appearance of conflicts of interest, Citi has enacted policies and procedures designed to limit communications between its investment banking and research personnel to specifically prescribed circumstances.
© 2012 Citibank, N.A. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world.
Citi believes that sustainability is good business practice. We work closely with our clients, peer financial institutions, NGOs and other partners to finance solutions to climate change, develop industry standards, reduce our own environmental footprint, and engage with stakeholders to advance shared learning and solutions. Highlights of Citi’s unique role in promoting sustainability include: (a) releasing in 2007 a Climate Change Position Statement, the first US financial institution to do so; (b) targeting $50 billion over 10 years to address global climate change: includes significant increases in investment and financing of renewable energy, clean technology, and other carbon-emission reduction activities; (c) committing to an absolute reduction in GHG emissions of all Citi owned and leased properties around the world by 10% by 2011; (d) purchasing more than 234,000 MWh of carbon neutral power for our operations over the last three years; (e) establishing in 2008 the Carbon Principles; a framework for banks and their U.S. power clients to evaluate and address carbon risks in the financing of electric power projects; (f) producing equity research related to climate issues that helps to inform investors on risks and opportunities associated with the issue; and (g) engaging with a broad range of stakeholders on the issue of climate change to help advance understanding and solutions. Citi works with its clients in greenhouse gas intensive industries to evaluate emerging risks from climate change and, where appropriate, to mitigate those risks.
efficiency, renewable energy & mitigation
