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Going Global - What Treasury Needs to Know

The days of being a purely domestic enterprise with exclusively American suppliers and customers are no longer a reality for most businesses. There are now significant pressures on treasury teams to align to the global reach of the business, and progress from supporting the business to helping lead it internationally. In this webinar, Ernst&Young and Kyriba reviewed key considerations and best practices to become an effective global treasury including:

Managing decentralization
SWIFT connectivity
FX hedging programs
Shared service centers
Pooling & Netting
Various payment strategies
If your organization is planning for increased global growth or to organically become more international, and are seeking best practices to optimize visibility and control, this webinar is ideal for you and your team!

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Going Global - What Treasury Needs to Know

  1. 1. April 8, 2016 Globalizing your treasury operation
  2. 2. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 2 Ehren Moeller EY Global Treasury Services ehren.moeller@ey.com Bob Stark Kyriba Corporation bob.stark@kyriba.com @treasurybob Today’s speakers
  3. 3. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 3  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
  4. 4. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 4 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
  5. 5. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 5 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
  6. 6. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 6 • 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?
  7. 7. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 7 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
  8. 8. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 8 Going global – where to start? Global visibility and payments Policies, procedures and control Cash and liquidity structures Risk management Treasury structures
  9. 9. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 9 • 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
  10. 10. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 10 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:
  11. 11. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 11 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?
  12. 12. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 12 Going global – where to start? Global visibility and payments Policies, procedures and control Cash and liquidity structures Risk management Treasury structures
  13. 13. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 13 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
  14. 14. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 14 How to obtain 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
  15. 15. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 15 How to obtain 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
  16. 16. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 16 • 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
  17. 17. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 17 • 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
  18. 18. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 18 Going global – where to start? Global visibility and payments Policies, procedures and control Cash and liquidity structures Risk management Treasury structures
  19. 19. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 19 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)
  20. 20. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 20 • 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
  21. 21. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 21 • 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
  22. 22. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 22 Going global – where to start? Global visibility and payments Policies, procedures and control Cash and liquidity structures Risk management Treasury structures
  23. 23. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 23 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
  24. 24. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 24 • The moment we leave the US, more regulations! • EMIR • SEPA • FBAR • FATCA • FTT • BEPS • Basel III • Country-specific (e.g., China) Regulatory changes
  25. 25. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 25 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 III Regulates 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
  26. 26. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 26 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
  27. 27. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 27 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
  28. 28. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 28 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
  29. 29. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 29 Going global – where to start? Global visibility and payments Policies, procedures and control Cash and liquidity structures Risk management Treasury structures
  30. 30. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 30 • 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
  31. 31. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 31 • 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
  32. 32. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 32 • 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
  33. 33. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 33 Vendors/ customers Cash mgmt. banks Credit banks Investing banks FX banks Cash pooling structure Corporate HQ In-house bank Sub 1 Sub 2 Sub 3 Sub n External funding External investments Internal FX funding Netting and payments Intercompany funding Physical/ notional pool Net external FX hedges Other transactions Enablingtechnology Enablingtechnology Enabling technology
  34. 34. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 34 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?
  35. 35. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 35 • 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
  36. 36. © 2016 Kyriba Corporation. All rights reserved. PROPRIETARY & CONFIDENTIAL. 36 Thank You For Attending facebook.com/kyribacorp twitter.com/kyribacorp linkedin.com/company/kyriba-corporation youtube.com/kyribacorp slideshare.com/kyriba kyriba.com/blog

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