IBM’s June Felix, general manager, global banking solutions, summed up a general business axiom doing the rounds currently: “It’s important not to miss a good crisis – and it has been a good crisis.” Speaking to just under 200 senior executives, including many corporate treasurers, at BNP Paribas’ third Cash Management University in Paris, she highlighted the opportunities created by this financial crisis for some companies to emerge stronger and gain more market share. In her presentation, she outlined IBM’s global credit strategy – IBM makes 250,000 credit recommendation/decisions annually – and the need for a global integrated process in order to make sound, rigorous decisions, adding that IBM learned to be “very paranoid from its near-death experience in the early 1990s”.
BNP Paribas appears to be grabbing this idea with both hands. In the opening plenary, François Villeroy de Galhau, member of the executive committee and head of French retail banking, BNP Paribas, outlined the bank’s commitment to its cash management business and its strategy moving forward. The bank is 10 years old and, since its inception in 1999, has tripled in size, not least due to its acquisition of Fortis as of 12 May which has “dramatically” extended its coverage.
In order to prove its commitment, BNP Paribas is creating four competency centres in Brussels – one of which will be a cash management centre headed by Pierre Fersztand, global head of cash management. The bank’s strategy for 2010 is to develop channel and web solutions to fully exploit web opportunities, while continuing to develop and extend its 2009 priorities: electronic bank account management (eBAM), the Connexis platform, SWIFTNet extension in the Middle East and north Africa, and the NetCast web solution in France.
Back to Basics: Cash and Treasury Management Strategies
Back to basics was the theme of the second plenary session looking at cash and treasury management strategies. Two corporate treasurers from very different industries talked about how they have managed their treasuries in the new financial climate.
Publicis, a media and communications company in 104 countries with three autonomous global advertising networks – Leo Burnett, Saachi&Saachi and Publicis – has a group treasury based in Paris, with country treasurers in local shared service centres (SSCs) looking after accounts receivable (A/R), cash management, tax, etc.
Pierre Boisselier, international treasurer, believes that a treasurer’s main job is to preserve cash generation during the financial crisis. He said that there were three areas to look at:
- Upstream: developing strong trade working capital and chasing overdues.
- Ongoing: set up efficient cash management processes to get visibility and manoeuvrability of cash.
- Downstream: set up efficient investment policy that includes secure cash (with who; in what) and leverage cash (cash pooling, cash recycling, etc).
In his experience, treasury needs to look at:
- Setting up a clear corporate policy that drives the bank relationship, cash management and investment policy.
- Incentivising operational stakeholders to support financial objectives, i.e. trade working capital, chasing overdues, etc).
- Building a bridge between controlling/reporting and treasury needs.
- Including a cash component in all systems, i.e. treasury management systems (TMS), collection tools, enterprise resource planning (ERP) systems, reporting tools, etc.
- And last, remembering that the best counterpart for a corporate is the corporate itself.
The second case study was presented by the group treasurer of Panalpina, which is an air and shipping freight company that has obviously suffered over the last 12-18 months. It has 500 offices in 80 countries. The company is asset light and cash rich. The treasury set-up is an in-house bank approach, where its bank deals with cash management, corporate finance and risk management; it does not manage A/R, which is a separate department. The global cash management model is a regional set-up with payments factories. Zero balancing is practiced in Europe, while notional pooling is done in Asia.
Group treasurer Marcel Kellerhals said that the financial crisis made the treasury focus on:
- Counterparty risk: i.e. operational risk and credit limits.
- Financial instruments: the company stopped investing in fancy instruments.
- Own financials.
“One of the questions the company asked is do we pay too much for bank charges? Well, the answer was yes,” said Kellerhals, “but we wanted to improve our business, not just by squeezing our banks, but by improving our processes.”
Panalpina took the following actions:
- Immediate: implemented a cash investment adjustment; re-confirm and spread credit lines; back-up solutions for payment factory (80-90% of payments was processed by one bank in one SSC); expand treasury reporting to chief financial officer (CFO); and spread the business over several banks (one bank won the payment factory contract for Europe, so there was pressure from within the company to stick with that bank).
- Mid-term: wanted to move to a situation of payment factory independence; get a global overview of local cash positions; and achieve rolling cash forecasts per currency.
- Cash management vision: single global IT platform; true in-house bank with treasury vehicle; global cash pools per currency in respective clearing countries; and a global payment factory (SSC), including collection “on behalf of”.
Kellerhals said: “We do the treasury job every day, crisis or not – we have to focus on profit and loss [P&L] and link it to the financial result. Every cent we can save is linked to making sure FTEs [full-time equivalents] are not laid off.”
Also in this session, Vincent Le Bellac, partner, PricewaterhouseCoopers, looked at where the industry is in terms of International Association of Standards (IAS) 39 – and it is looking like a “heart transplant”. There will be a full replacement of IAS 39 during 2010 involving three phases: classification and measurement, to be completed for financial statements as of December this year; impairment – the exposure draft (ED) is to be released this month; and hedge accounting ED will come out in December. The big breakthrough is that there may be no effectiveness test for hedge accounting.
Although this overhaul will have a mandatory effective date no earlier than January 2012, companies will probably be allowed to move to early application of the standard.
The corporate treasurers’ associations have objected to a number of issues, such as the prohibition of reclassification between categories and the removal of the possibility to keep equity instruments at cost when fair value cannot be reliably measured. Le Bellac stressed that corporate treasurers need to engage and lobby the International Accounting Standards Board (IASB), even if they have been that successful in the past, because the standard’s re-draft will be completed in 2010.
Innovation Through eBAM
In the session, ‘Innovative Solutions for Improving Corporate Treasury Efficiency and Risk Management’, electronic bank account management (eBAM) was the main innovation under scrutiny.
Gilbert Labbé, head of treasury and subsidiaries and financing department, EDF, discussed why the company had joined SWIFT in developing this initiative in 2007. Ultimately, Labbé wanted to dematerialise bank mandates, or take the paper out of the power of attorney process, but the side effects were: a single database to monitor mandates, a tool making research easier and improving security, and traceability for external auditors.
SWIFT, Alsyon and EDF formed a validation group that has focused on message contents. The pilot programme ran from April to September and looked at three kinds of messages: account opening, opening return receipt and account opening reporting. Although things are moving forward, Labbé said that the project will take some more time to complete.
Elie Lasker, head of corporate market, SWIFT, also spoke about the eBAM initiative, outlining the scope and deliverables:
- Scope: for existing customers (after know your customer (KYC); account opening and account maintenance; account closing; and account features reporting (for the auditor).
- Deliverables: draft schemes December last year; pilot testing 2Q09; SWIFT solutions and ISO certificate end 2009; and ongoing vendor programme.
Lasker announced that SWIFT is to launch a new personal digital identity solution in early 2010, which he believes is an essential component of an eBAM solution.
Innovation in Emerging Markets
The discussion on innovation spilled over into one of the workshops: ‘Cash and Treasury Management in Rapidly Growing Countries’. Based in Turkey, Mustafa Kilic, group treasury manager, cash and insurance management, Indesit, an Italian home appliance firm, talked about the concept of treasury management 2.0 and how the company decided to re-think its treasury platform. As the company’s business started to shift from western Europe eastward, it selected three solutions specifically for high growth emerging markets:
- Direct buyer finance solution (DBFS).
- Direct supplier finance solution (DSFS).
- Hybrid cash pooling solution (HCPS).
Indesit developed DBFS because it was concerned about A/R: 65% of total assets, 34% of total liabilities and 27% of net sales resided in A/R. The benefits of DBFS are:
- Collections on time.
- Reduction in collaterising, assuring and risk monitoring, as well as clearance costs and operational workload.
- Boosts order-to-cash (O2C) speed.
- Improves quality of receivables.
- Ability to better forecast cash flows.
- Creates potential for extending payment terms without burdening buyers with high financing costs.
DBFS has been rolled out in Turkey, while the Czech Republic and Hungary will be launched soon.
In addition, Indesit saw that suppliers factoring requests had risen by 273% in the past year, so there was a definite need for a DSFS. The reasons behind looking to such a solution similar are to DBFS. At the present, the DSFS solution is only live in Turkey.
With €72m average daily cash balance in 11 currencies, Indesit needed a consolidated view of its cash. The HCPS allows the company to have one negotiated cash pool in the Czech Republic, Hungary and Poland; Russia will be added in January next year.
Soo Tat Kua, head of cash management Asia, BNP Paribas, added an Asia-region perspective to this session, looking specifically at developments in the region with a focus on China. The most interesting development is that China has introduced cash pooling in local currencies. Banks in Asia can now offer renminbi accounts, which is the first step towards the internationalisation of the renminbi.
The session’s questions and discussion revolved around quite specific legal aspects of cash pooling and sweeping – country specifics, continually changing to laws surrounding these aspects of cash management. Kilic said that Indesit was spending a huge amount of money in fees to expert legal firms because not even they can keep up with the regimes, particularly with regards to Russia.
Similar to last year’s university, risk management continues to be at the forefront of treasurers’ minds. This year, however, it went hand-in-hand with liquidity management, as illustrated in the event’s theme: successful liquidity and risk management in an ever-changing world.
In his presentation, Andrew Woods, group vice president, global treasury solutions, SunGard, said there were three ways to increase liquidity and reduce risk:
- Apply a systematic approach to risk.
- Automate O2C workflow.
- Obtain enterprise-wide visibility of cash.
Sounds easy, yes?
Tomorrow the attendees will hear a global economic overview from Christian Dargnat, chief executive officer (CEO) and chief investment officer, BNP Paribas Asset Management, and there will also be a session on new business and cash management opportunities from the single euro payments area (SEPA), which, so far, has not received much attention, but is surely not forgotten.
When it comes to the relationship between Europe and Britain – uniformity isn’t a word that currently springs to mind. And that’s not just a reference to Brexit. Whilst the Europe and Britain do find themselves in the midst of a political break-up – their monetary policies are also showing signs of divergence.
Europe’s introduction of the General Data Protection Regulation (GDPR) next May will have implications for businesses around the world and US corporates should start getting ready if they haven’t already done so.
The recent NotPetya cyberattack underlined the need for organisations to address their exposure and how to mitigate the risk.
As anticipated, US organisations exited prime money market funds en masse following last year’s SEC reforms. AFP’s latest Liquidity Survey indicates what it will take to encourage them back.