Insights From Our Clients.What s Next?

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1 Treasury and Trade Solutions Fall 2013 Insights From Our Clients.What s Next? Panelists: Raeleen Medrano Assistant Treasurer IBM Sharon Petrey Assistant Treasurer The Coca-Cola Company Joe Promo Assistant Treasurer Global Treasury Services, Merck Moderators: Michael Fossaceca rth America Sales Head, Corporate Treasury and Trade Solutions, Citi Asok Patnaik Segment Strategy & Cross Product Initiatives Liquidity Management Services Treasury and Trade Solutions, Citi

2 Panel Discussion Perspectives from the Client Advisory Board Survey Key Challenges & Next Steps : Panel Discussion Panel & Audience perspectives : What should Citi invest in? Appendix - Validations from Citi Treasury Diagnostics 1

3 1. 1a Visibility, Funding, Liquidity & Risk Management How would you rate your visibility of global Cash on a daily basis? What are your key impediments to achieving 100% visibility of global cash on daily basis? 50-75% 9% impediments - we have very close to 100% visibility 27% Over 90% 41% Lack of a global Treasury Management System 32% 76-90% Some banks in emerging markets unable to provide daily statements The cost of getting to the last 10% visibility is not worth it 41% 45% Others 5% What types of pooling structures do you use to manage liquidity in your company? Please check all that apply. 90% 80% 70% 60% 40% 30% 20% 10% 0% 77% Cash concentration / Physical pooling 45% Single Currency tional Pooling 41% Multi-currency tional Pooling If you have a Multi Currency tional Pool, how would you best describe its effectiveness? The pool is providing sufficient/anticipated benefits and we expect to maintain as-is The pool is providing sufficient/anticipated benefits and we expect to expand usage (e.g. add more legal entities/currencies/balances) The pool is NOT providing sufficient/anticipated benefits and we expect to review it 0% 20% 40% 60% 13% 25% 63% 0% 100% 2

4 2. 1b Visibility, Funding, Liquidity & Risk Management Approximately what % of your cash would you say is trapped? 60% 40% At this stage what effects from Basel III are you seeing from your relationship banks? Please check all that apply. Deposit pricing has started to change 27% 30% 23% Loan pricing has started to change 18% 20% 14% 10% 5% Derivative pricing has started to change 18% 0% 0-10% 10-20% 20-30% >30% effect seen as of now What are you doing to leverage trapped cash? Please check all that apply. Mitigate trapped cash through reorganization of third-party and intercompany flows Whenever local funding is needed, actively evaluate all available options to use "least costs" tools Deploy best available local liquidity structures to optimize onshore cash usage before moving in liquidity from offshore Use an efficient global cash forecasting program to maintain tight control on local subsidiary funding and repatriation Stay up to date with the latest local regulatory changes and tools available in all key markets 36% 36% 45% 91% In the past couple of years, when it comes to managing counterparty limits for relationship banks: We have been able to increase limits We have remained more or less at the same level We have reallocated limits across banks We have reduced limits 27% 36% 23% 0% 3

5 3. 2 Working Capital Would you agree that in recent years Treasury s role in operational activities such as AP/AR/Supply Chain has increased? If yes, what are the key reasons why you think Treasury s role in operational activities has increased in recent years? More demand from the operating business for support/consulting from treasury 45% Better balance sheet structure and efficiency 45% 5% 95% Concerns stemming from greater commercial/sovereign credit risk in new markets/jurisdictions 18% Greater focus on improving operational controls or alleviating rising operational risks associated with processing activities 32% Greater focus on visibility & control of cash 41% Reducing working capital requirements 36% 4

6 4. 3 Treasury Structure & Governance Do you have one or more In House Banks or are you considering setting up one in 2014/2015? 41% t Sure 4% 55% If yes, what are the key factors that were/are important in creating the In House Bank(s)? More effective management of intercompany term loans More effective management of intercompany demand/revolving More ef f ective FX risk management 42% 75% Reducing bank cash and external debt held at subsidiaries 75% 70% 60% 40% 30% 20% 10% 0% How quantifiable are the benefits of your IHB to your management? 58% You are able to demonstrate clear, financially quantifiable benefits You focus partly on financially quantifiable benefits and partly on qualitative benefits 17% You focus more on qualitative benefits, as quantifiable benefits are hard to measure Others Will your Treasury have any major transformation projects during 2014 and, if so, what are the main drivers? Please choose all that apply. We do not have any notable projects ongoing or planned for 2014 Enterprise led business transformation project with impact on Treasury (e.g. Enterprise-led technology transformation project with impact on Treasury (e.g. ERP Treasury-led transformational project (e.g. material treasury organizational, Treasury-led banking restructuring or streamlining project 5% 8% 9% 27% 36% 5

7 Key Metrics from Citi Treasury Diagnostics > Treasury Trends > Working Capital Trends

8 What is Citi Treasury Diagnostics? Citi Treasury Diagnostics SM is a global benchmarking platform providing treasury insights based on data from over 350 multinationals. Built on Six Aspects 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 Benchmarks Relative Performance Detail Policy & Performance Risk Management +/- Governance Liquidity Systems & Technology My Score My Score Peer Group Peer Group My Relative Performance Process Area Against Peer Group Against Universe Liquidity/funding risk Worse Worse Working Capital Risk Management Universe Universe Interest rate risk Worse Worse Foreign Exchange (Transactional) Better Better Sub Funding & Repatriation Winner, Celent Model Bank Award Winner, Innovative Product Silver Winner, Solution of the Year, Treasury and Risk Alexander Hamilton Awards 6 Key Metrics from Citi Treasury Diagnostics

9 Citi Treasury Diagnostics SM Participant Profile CTD participants come from all geographies and industries. Geography* Market* Industry Industrials 25% NA 36% ASIA 25% Emerging Mkt 24% Consumer TMT 23% 19% LATAM 6% EMEA 33% Developed Mkt 76% Energy, Chemicals, Metals (ECM) Healthcare Others 7% 7% 18% * HQ Locations Treasury Trends Working Capital Trends Netting Center Treasury Center In-House Bank Shared Service Center Cash & Funding Risk Governance Systems Accounts Payable Accounts Receivable Source: Citi Treasury Diagnostics (Last Updated July 2013) 7 Key Metrics from Citi Treasury Diagnostics

10 1. 1 CTD Trends: Visibility, Funding and Risk Management Cash & Funding Visibility 1 42% +17% Full visibility of daily cash balance increased by 17% 59% Post financial crisis, there is greater emphasis on global visibility, control & risk management Daily Cash Balance Full Visibility Risk Treasury Risk Coverage 3 Forecast 2 +4% 32% Fully or Partially Automated Forecast facilitated by TWS/ERPs gained ground by 4% FX 83% 17% Liquidity 78% 22% Counterparty 84% 16% 27% Interest Rate 71% 29% Fully or Partially Automated Forecast (facilitated by TWS/ERPs) Commodity 36% 64% 1. How much of your total cash balance do you have daily visibility to? 2. Do you forecast your cash flows? 3. Does your treasury policy cover all FX, Liquidity, Counterparty, Interest Rate, and Commodity risks? Source: Citi Treasury Diagnostics (Last Updated July 2013) 8 Key Metrics from Citi Treasury Diagnostics 2009 Responses Responses

11 2. 2 CTD Trends: Working Capital Structure Shared Service Center 1 70% 30% Emphasis on internal funding is driving up treasury s involvement in working capital. A/R A/P Treasury involvement in WC Mgmt. 2 AR Mgmt. 3 AP Mgmt % +9% +8% 27% Treasury Directly Involved 74% in WCM (Current) 66% (2009) 34% 20% Customer Receivables 38% 29% Supplier Payments 1. Have you established shared service centers (SSC) to support business processes? 2. Which one of the following best describes Treasury s current role in working capital management? 3. What is the scope of Treasury s responsibility Customer Receivables? 4. What is the scope of Treasury s responsibility Supplier Payments 2009 Responses Responses Source: Citi Treasury Diagnostics (Last Updated July 2013) 9 Key Metrics from Citi Treasury Diagnostics

12 3. 3a CTD Trends: Structure and Governance Structure Centralized Treasury 1 74% 27% Netting usage is higher for industrials, tech and healthcare companies and is lower for consumer and energy companies Netting 2 In-House Bank 3 57% 43% 41% 59% Favored Locations for In-House Bank: Ireland, Netherlands, Switzerland, Belgium. Singapore tops locations in Asia Governance 26% Treasury KPIs 4 74% 32% Treasury Business Continuity Plan 5 68% Centralization continues, with emphasis on tax, financial & operational efficiency. Treasuries are increasingly being measured on quantifiable KPIs 1. Which best describes your treasury organization? 2. Do you operate an Intercompany Netting Process? 3. Do you have an in-house bank? 4. Is Treasury Department s performance measured through quantifiable KPIs? 5. Do you have a treasury business continuity plan? Source: Citi Treasury Diagnostics (Last Updated July 2013) 10 Key Metrics from Citi Treasury Diagnostics

13 4. 3b CTD Trends: Technology Systems 33% TMS 1 67% 49% Use of Fewer Bank e-platforms 2 51% Companies are moving towards an end state of Single Instance ERP & single global TMS, but these are multi year projects. Of companies with centralized treasury, 72% use TMS Systems Access +5% ERP TMS Module 86% +3% 89% Corporates are increasingly using ERP TMS modules Accessed by All 27% 32% 27% 32% locations Access by central corporate treasury 34% and RTC(s) Access by central corporate 29% treasury only 34% 29% +4% 28% 35% 28% 35% Use of ERP / TMS 3 Location of systems accessed for treasury processes 4 1. Do you use a Treasury Workstation System (TWS) or ERP Treasury Module? 2. How many electronic banking platforms do you have? 3. Does your treasury system interface with your corporate and legal entity ERP and general ledger systems? 4. Where are the system(s) accessed and used for treasury processes? Source: Citi Treasury Diagnostics (Last Updated July 2013) 11 Key Metrics from Citi Treasury Diagnostics 2009 Responses Responses

14 1. 4 Industry Breakdown: Treasury Trends Centralization 12 TMT 77% Universe 75% 63% 63% 68% 80% Consumer Trends appear to indicate that best in class is generally agnostic to industry verticals. ECM 70% 63% 60% 75% 68% 85% Healthcare In-House Bank (IHB) 4 Industrials Centralized Treasury Centralized Risk Management Universe 48% 52% Treasury KPIs 3 Consumer 49% 51% 80% 70% 60% 40% 30% 20% 10% 0% 70% 69% 65% 66% 67% 58% Universe Consumer Healthcare Industrials ECM TMT Healthcare Industrials ECM TMT 54% 42% 46% 58% 1. Which best describes your treasury organization? 2. Is risk management centralized or regional? 3. Is Treasury Department s performance measured through quantifiable KPIs? 4. Do you have an in-house bank? Source: Citi Treasury Diagnostics (Last Updated July 2013) 12 Key Metrics from Citi Treasury Diagnostics

15 2. 5 Industry Breakdown: Working Capital Trends Treasury in Working Capital Management 1 Universe 71% 30% Consumer 68% 32% Healthcare 71% 29% Treasuries are playing a larger role in Working Capital Management but many have not reached optimal state. Industrials 68% 32% ECM 63% 37% Treasury Involvement in WC - Score (0-5) 3 Universe TMT 86% 14% 2.3 Shared Service Centers (SSCs) 2 TMT Consumer 66% 73% 86% 67% 53% 75% ECM Healthcare Universe Consumer Healthcare Industrials ECM TMT 2.5 Industrials 1. Which one of the following best describes Treasury s current role in working capital management? 2. Have you established shared service centers (SSC) to support business processes? 3. Overall calculated Treasury and Working Capital score Source: Citi Treasury Diagnostics (Last Updated July 2013) 13 Key Metrics from Citi Treasury Diagnostics

16 3. 6 Industry Breakdown: Technology Trends TWS / ERP 1 Universe TMT ECM 78% 62% 67% 68% 61% 64% Consumer Healthcare In our wider client universe, there is still much room for improvement in treasury technology. Industrials Payment Processing Systems 2 60% 40% 30% 20% 10% 0% Universe Consumer Healthcare Industrials ECM TMT Multiple systems with E-Banking One system per region with host to host links Single processor with host to host interface Other Treasury Processes supported by TWS / ERP 3 Universe 82% 75% TMT 84% 81% Consumer 83% 71% 22% 25% 16% 28% 21% 65% 22% 74% 67% 89% ECM Healthcare 77% 83% Bank Relationship Management Treasury Controls and Accounting Industrials Cash Operations/Liquidity Management 1. Do you use a Treasury Workstation System (TWS) or ERP Treasury Module? 2. Have you rationalized your payment processing systems in any of the ways noted below? 3. What treasury processes does your TMS support? (Bank Relationship management; Cash Operations / Liquidity Management; Treasury Controls and Accounting) Source: Citi Treasury Diagnostics (Last Updated July 2013) 14 Key Metrics from Citi Treasury Diagnostics