Adam Smith Awards - Treasury Today

2012Adam Smith Awards

Best Practice and Innovation

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Welcome– Sponsor’s message

There is no doubt that we are in tough times, however many corporates are proving that they are tougher – not just surviving but thriving. Today, their growth and success has never been more significant. Nurturing excellence in treasury and finance is an important part of our support for business, both in the UK and across the globe. That is why we are proud to be sponsors of the Treasury Today Adam Smith Awards to recognise and celebrate pioneers in the field of corporate treasury.

Looking through the case studies in this Supplement I am sure you will agree they are very impressive. I see creative, innovative solutions that are delivering genuine benefits in key areas such as cost efficiency, process efficiency and risk mitigation. The winners span far and wide in terms of geography, industry sector and company size. This year has particularly emphasised that you don’t have to be a global corporate to be innovative or demonstrate best practice and these awards celebrate successes regardless of the scale of business.

There is much we can learn from the case studies detailed in this Supplement and I would like to congratulate each and every winner on their outstanding achievements.

Andrew EnglandManaging Director, Transaction Banking

Lloyds Bank Wholesale Banking and Markets

treasurytoday Adam Smith Awards © August 2012 | 1

“Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking af� liates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking af� liates of Bank of America Corporation (“Investment Banking Af� liates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., all of which are registered broker-dealers and members of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. Investment products offered by Investment Banking Af� liates: Are Not FDIC Insured May Lose Value Are Not Bank Guaranteed. ©2012 Bank of America Corporation

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ContentsWelcome 5

Award winners 6

Case studies 13

Photo gallery 54

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“Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking af� liates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking af� liates of Bank of America Corporation (“Investment Banking Af� liates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., all of which are registered broker-dealers and members of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. Investment products offered by Investment Banking Af� liates: Are Not FDIC Insured May Lose Value Are Not Bank Guaranteed. ©2012 Bank of America Corporation

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Welcome

2012 represents the fifth anniversary of our Adam Smith Awards. Once again, this year’s winners demonstrate the sheer talent, determination and innovation within the corporate treasury domain. It seems these turbulent times with the ongoing Eurozone problems, and political and economic unrest around the globe bring out the very best amongst treasury professionals.

Each May the judging panel has a very difficult task of selecting the winning and highly commended solutions, and their decisions are often debated for several days until consensus is reached. Last year, I predicted that our 2011 entries would be a hard act to follow and, while this is very true, the 2012 winners showcased in this Supplement really have pushed the boundaries to the limit.

229 entries were received this year from 24 countries, with every continent represented and there was a good mix of company size and industry sector too. One interesting observation is that just over 50% of nominations stated they were global in terms of geographic dimension. This demonstrates the continued drive towards centralisation, as well as the trend towards regional, and indeed, truly global integration of treasury structures, systems and processes wherever possible.

It is also worth noting the most popular categories in this year’s programme: Best Process Re-engineering attracted 27% of entries. Our Treasury Today Top Treasury Team Award for overall excellence was also a popular choice with 19% followed by Best Cash Management Solution (18%), ‘First Class’ Bank Relationship Management (17%) and Best Risk Management and Best Financing Solution (both 15%). Are these perhaps an accurate reflection of the treasurer’s key priorities today?

In terms of benefits derived from nominated solutions, these focussed largely on process efficiencies (74%), cost savings (67%), risks removal/mitigation (65%) and productivity gains (56%).

We introduced four new categories in 2012: Best Short-Term Investment Strategy, Best Financing Solution, Best Process Re-engineering and Best in Class Benchmarking. Our judges also decided on an additional Award (Judges’ Choice) to recognise a submission that really stood out from the crowd.

I and the entire team at Treasury Today wish to congratulate you all – we are already looking forward to the 2013 Awards.

”

I predicted that our 2011 entries would be a hard act to follow and, while this is very true, the 2012 winners showcased in this supplement really have pushed the boundaries to the limit.

“

Richard Parkinson Managing Director, Treasury Today


Award Categories and WinnersCongratulations to the winners of the Treasury Today Adam Smith Awards for Best Practice and Innovation 2012.

Treasury Today’s Top Treasury TeamOpen to any corporate team that made an outstanding contribution to its organisation, this Award recognised those who have made the world of corporate treasury that much better. This could have been purely the treasury team or a broader team effort involving different disciplines within a company.

Winner: Toyota Financial Services, Paul Boodee 13Despite the ongoing credit crisis and the Toyota product recalls that occurred prior to 2011, the company managed to rise above adversity and remain innovative while still providing uninterrupted, cost-competitive funding for its organisation, supported by an enhanced risk management framework. As it braced itself for 2011, TFS built upon the experiences of past crises to position itself for a changing regulatory environment and volatile global market.

Highly Commended: AstraZeneca, Patricia Greenfield and Andrew Marshall 16During the acquisition and subsequent integration of MedImmune in 2007, it became clear that AstraZeneca’s treasury infrastructure and associated processes were less than efficient. Meanwhile, as both the company and the treasury technology sector evolved, AstraZeneca’s existing treasury management system (TMS) was no longer able to keep up with the growing needs of the treasury department. Consequently, AstraZeneca realised that investment in systems was going to be essential in order to ensure that the infrastructure was suitable, not just for the treasury’s needs today, but for at least ten years into the future.

Highly Commended: British Council, Peter Lay 18Several years ago, The British Council had 15 people working in the treasury department as the charity was in the middle of a global integration of SAP and rebuilding the treasury function. Over the past five years, the British Council’s treasury hub has been modernised and it now supports the company’s banking and treasury activities across 110 countries. The front office (of which there are four people) is based in London and the back office is located in the shared service centre (SSC) in Noida, Delhi – a consolidation of five different SSCs over the last four years.

Judges’ ChoiceAnother new Award for 2012, which is designed to celebrate something just that little bit different. This might be a solution that was the first of its kind, or simply a nomination that showed real star quality and a little ‘je ne sais quoi’.

Winner: Hotel Chocolat Ltd, Peter Harris 19There are currently over 60 Hotel Chocolat stores in the UK, and operations abroad in the US and Europe. Hotel Chocolat was looking to raise finance in order to progress with a number of projects, including opening more retail outlets in the UK and expanding its overseas operations. In addition to traditional bank financing Hotel Chocolat was keen to explore less conventional financing opportunities. What the company came up with was the innovative idea of borrowing money from its customers and paying their returns in chocolate!

6 | treasurytoday Adam Smith Awards © August 2012

Adam Smith Awards for Best Practice and Innovation 2012

First Class Bank Relationship ManagementManaging bank relationships has become a core task for the treasurer. Companies may have introduced a new RFP/bank selection process or had to innovate to maintain credit lines. Projects relating to the outsourcing of tasks to the bank and client service delivery were also eligible. This category covered all aspects of the corporate/bank relationship.

Winner: British Council, Peter Lay 20A collaborative project between the British Council, SAP and Standard Chartered allowed the charity to automate its host-to-host payments solution across east and west Africa. The judging panel at Treasury Today felt this was a remarkable achievement because the treasury experienced little difficulty when it came to implementing its host-to-host ACH payments solution in the region. What is more, the Council was rolling out another banking solution in Asia – in Pakistan, Afghanistan, and Nepal – at the same time.

Highly Commended: Royal FrieslandCampina, Klaas Springer 21With the help of Zanders Consultancy, Royal FrieslandCampina’s treasury developed an innovative solution that it refers to as the ‘Wallet Sizing’ Model. The ‘wallet’ includes all the company’s worldwide banking partners and paved the way for renegotiation of an ‘amend and extend’ of the company’s €1 billion general purpose syndicated credit facility in the difficult market conditions that prevailed in October/November 2011.

Highly Commended: A.P. Moller–Maersk, Julia Persson 22In mid-2011, Maersk successfully piloted a web-based e-sourcing tool for a cash management tender for one of its business units. With the new software tool, the company was able to configure workflow to set up events, timelines, cost models, and automatically calculate pricing based on pre-defined criteria embedded in the cost model. This allowed the company to create and maintain scenarios to tailor bank data as per business requirements and drive negotiations among internal stakeholders.

Best Cash Management SolutionFrom visibility of data to an automated sweeping process, the winning solution could have been a simple cash reporting process or a new hybrid liquidity solution. Eligible projects also included special purpose vehicles, innovative account structures and improving efficiencies, whether mono– or multi-bank.

Winner: Merck, Jörg Bermüller 23Four major payment currencies (EUR, USD, CHF and GBP) represent 70% of the total transaction volume at Merck. Multiple cash pool structures for each currency had been in existence since the company’s initial setup and/or inherited through acquisitions in 2006 and 2010. This unnecessary amount of currency pools led to inefficient usage of liquidity, with no clear bank-country-currency allocation and limited access to liquidity of non-participating entities. So not only were there massive internal efficiencies to be gained, but there was also significant potential to reduce overall banking fees and to further increase liquidity concentration at group level.

Highly Commended: Diageo, Szilvia Zacsovics 25With Diageo’s European business generating £2.8 billion of its net global sales, the company was looking to enable instant access to cash across the region. Diageo also wanted to adopt seamless payables and receivables management, in order to minimise potential disruptions to its supply chain. By partnering with Bank of America Merrill Lynch (BAML), the company was able to run through a variety of different cash management scenarios and structures. In addition, BAML assisted in putting in place the right contingency measures to make sure the company was able to minimise any supply chain threats.

Highly Commended: Microsoft Corporation, Jim Scurlock and Sunnie Ho 26Microsoft runs a centralised treasury for more than 350 legal entities in 118 countries. The company has more than 1,100 bank accounts in over 100 institutions worldwide. At the height of the recent global economic crisis, each dollar held in local subsidiary managed accounts faced increased counterparty risk, sovereign risk, foreign exchange fluctuations, and risk of fraud. The company changed that by automating its collection sweeps and implementing a just-in-time funding model for subsidiary disbursements.

Highly Commended: SAP, Damian Preisner 27With more than 183,000 customers and 55,000 employees worldwide, automation has been a major goal of SAP’s Global Treasury in recent years. With the aim of reducing the support, effort and the total cost of ownership, the company wanted to implement one global payment format for the multiple banks it deals with across many different countries. At the same time, SAP was looking to promote flexibility in its bank partner selection, thereby reducing counterparty dependency.


Award Categories and Winners

Best Short-Term Investment StrategyNew for 2012, this category addressed the growing challenges being faced by corporates in terms of the trade-off between yield, liquidity and security. The judges were looking for innovation in how companies had developed their strategies in these challenging times, whether through optimisation or diversification.

Winner: Toyota Financial Services, Nicholas Ro 28In addition to global macroeconomic issues, Toyota Financial Services (TFS) was experiencing its own unique challenges due to the automobile production disruptions from the earthquake in Japan and flooding in Thailand. In turn, this impacted TFS’ short-term investment portfolio (STIP) because the investment strategy centres its decisions on the cash flows required to fund future liquidity needs within a 12 month period. With greater uncertainty regarding TFS’ future liquidity needs, the key issue for the investment team was how to improve the company’s cash flow forecasts.

Highly Commended: Mattioli Woods, Nathan Imlach 29A pension consultancy and wealth management services provider, Mattioli Woods holds over £65m in more than 3,000 bank accounts for the company and its clients. With interest rates remaining low – and no obvious sign of improvement in these rates in the near future – the option of offering clients an attractive rate had become increasingly difficult for Mattioli Woods. Therefore, the company was looking for a solution which would increase the interest income on its customer accounts.

Highly Commended: SAP, Andreas Hartmann 30The mandate for SAP Global Treasury is to support the underlying operational business by having cash available at very short notice and ensuring that no default of counterparties or investments affects the operational liquidity or the strategic flexibility of the company. To cope with company requirements and the financial market environment, SAP’s global treasury broadened its investment scope and developed a four pillar strategy.

Best Working Capital Management/Financial Supply Chain/AP/AR SolutionOne of the main challenges in financial supply chain management is understanding how decisions made within the supply chain can influence working capital. Business processes covered in this category included revenue management (order-to-cash), expenditure management (purchase-to-pay) and supply chain management (forecast-to-fulfilment), as well as AP/AR solutions.

Best Financial Supply Chain Solution

Winner: Rolls-Royce, Andrew Leach 31Rolls-Royce has a very large number of vendors, many of which are small businesses producing highly technical and specialised parts for use in its products. Were any of these companies to cease production through the lack of finance, it could impact Rolls-Royce’s production. For this reason, a few years ago Rolls-Royce began planning a supply chain finance (SCF) programme for selected suppliers. Safeguarding the company’s supply chain through one of the most volatile periods the financial markets have known, was an important factor in this solution.

Best AP/AR Solution

Highly Commended: Brocade Communications Inc, Yun Kong 32Brocade’s treasury helped its shared service centre (SSC) implement an electronic file delivery (EFD) platform with Bank of America Merrill Lynch for foreign subsidiary payroll batch payment processing. The solution replaces the old wire payment process for most foreign subsidiaries with over 1,000 employee payrolls.



Best Card SolutionNo longer just a piece of plastic, corporate cards have become an integral part of the cash management set-up. The winning solution could have covered any aspect of corporate cards from improving the richness of procurement data to minimising the risk of fraud.

Winner: Allstate Insurance Co., Mark Madeyski 33In order to overcome the challenges Allstate’s treasury team faced in managing the company’s disparate, decentralised process for funding marketing efforts across its network of agencies, a declining balance card programme was established. Working with Citi Commercial Cards, Allstate developed the Executive Advantage card programme as a means to incentivise and reward its 10,000 plus sales team. This is a unique solution in the marketplace today, with two patents pending.

Highly Commended: Toyota Financial Services, Jiming Chen 34This cross-organisational project aimed at consolidating the Toyota/Lexus-branded credit card customer data has delivered many benefits to the organisation. The analytics solution was supported by Axium’s ‘matching logic’ software to create personal identification keys that enable measurement of loyalty at the customer level. The Analytics Group could then deliver new analyses to management that point to enterprise-wide impact.

Best Financing SolutionWith sources of credit still squeezed, corporate bonds have made a comeback in recent months. The judges were looking for companies that had investigated alternative financing to help them cope through the crisis, or simply to better their overall debt strategy.

Winner: Faurecia, Baudouin Courau 35Faurecia was in a challenging situation. The company had to reimburse a shareholder loan, and refinance its main credit facility, could not ask for more funding from its banks, but at the same time needed to bring more banks on board. Faurecia also needed to diversify its funding sources and remove the support burden from its main shareholder – all in the midst of a major financial crisis, and dwindling credit capacity from banks. In less than six months, Faurecia successfully changed the profile of the company’s funding structure.

Highly Commended: Sanofi, Laurence Valentin 36This was Sanofi’s debut deal in the dollar SEC-registered market and embedded the largest bond transaction done in 2011 globally. It has enabled Sanofi to raise a significant amount of finance at record low interest rates. The magnitude of this cheap leverage has been a key factor in the positive evolution of the company’s share price, with a mechanical lowering of Sanofi’s weighted average cost of capital.

Highly Commended: Virgin Media, Rick Martin 38The continuing optimisation of Virgin Media’s debt complex has already delivered reductions in the company’s annual interest expense of more than £60m. This contributes in a meaningful way to Virgin Media’s 20% growth in annual free cash flow and also helps in freeing up cash for investment in the business and returns of capital to shareholders.



Best Risk Management SolutionThe winner in this category needed to demonstrate excellence in any aspect of risk within the corporate treasury arena, such as foreign exchange risk, interest rate risk, systemic risk, country risk, commodity risk, counterparty risk, operational risk or other risk including weather and environmental risk.

Winner: Hewlett-Packard, Zac Nesper 39Hewlett-Packard (HP) has one of the largest foreign exchange exposures in the corporate sector. The size of this exposure can be a large portion of the average daily trading volume in some emerging markets. An appropriate execution strategy is therefore extremely important to ensure that HP maximises the value of its hedges. The company wished to develop a trading strategy to optimise trade execution, thus obtaining the best price and in some instances maintaining anonymity in the market.

Highly Commended: Ford Motor Company, Dennis Tosh 40The wide remit of Ford’s Global Trading and Risk Management department covers several key trading activities, including cash investment, hedging, commercial paper pricing and sales, as well as FX, commodities and credit risk management. Given the capital intensive, cyclical nature of the business, cash flow is one of the most important metrics Ford uses in judging its performance. The treasury department decided to build a new CFaR capability to better understand what its net exposures are and to be more strategic in managing risk.

Highly Commended: Inchcape, James Clephane 41Prior to the 2008 financial crisis, like many corporate treasuries, Inchcape’s treasury department placed a great deal of emphasis on credit ratings agencies. The company relied on the AAA assessments the agencies gave funds as a method of determining the safety of its short-term investment portfolios. Realising that better and more robust processes were required, the company chose Institutional Cash Distributors (ICD) to bring simplicity and visibility to its trading and risk management records.

Best MME-SME Treasury SolutionThis category was specifically targeted at MME/SMEs and recognised that the company does not have to be a major multinational to be considered for an Award. This included any aspect of the treasury/cash management arena where innovation and/or best practice were being demonstrated.

Winner: Mattioli Woods, Nathan Imlach 42Mattioli Woods is bound by client money regulations, which has a knock on effect on the number of bank accounts the company has. In fact, the company holds over £65m in more than 3,000 bank accounts, both for Mattioli Woods itself and its customers. The company splits its interest income on these accounts accordingly. But with interest rates continuing to be at historic lows, it was difficult to offer customers a good rate of return on their investments, making it harder to compete for new business. The company was looking for a solution which would increase the interest income on the cash in its customers’ accounts.



Best Process Re-engineering SolutionThis was a new category for 2012 and recognised the continuing importance of harnessing the power of technology, a previous category in its own right. Any form of technology deployed within the corporate treasury/finance function which showed innovation and/or demonstrated best practice was eligible for this Award.

Winner: Pfizer, Susan Webb 43Pfizer’s winning solution brings cutting-edge technology benefits to a basic, yet fundamental, treasury process. The project took a series of long-standing and highly manual processes associated with Pfizer’s very substantial global inter-company processes and created in its place an automated, re-engineered, end-to-end workflow that thoroughly overhauls and modernises the process.

Highly Commended: ITV, Karen Fagan 44At ITV, there was a great deal of manual processing involved in the day-to-day processing of transactions. International bank statements were sent by the different entities to the treasury department but this could be on a weekly or monthly basis. The company’s cash pool set up was also extremely complex, with a large number of varying balances on each of the accounts across the pool. The company wanted to consolidate its cash position and sweep excess funds to zero balanced pool headers for each currency.

Highly Commended: Lindner Finanz, Peter Schädelbauer 45Due to the steady growth of the group and its international expansion, the finance department had to evolve quickly and efficiently. In 2008, the first treasury management system was introduced group-wide. The formation of the Lindner Finanz GmbH as an independent in-house bank at the end of 2009 followed. But in addition to complex legal and fiscal problems that needed to be addressed, a short-term TMS upgrade – to Bellin’s tm5 – was necessary, a trading platform had to be implemented, and a cash pool had to be converted.

Treasury Today in ChinaThe winning solution could have been a response to contemporary challenges and the intricate regulatory environment or could have addressed more fundamental treasury conundrums. This category captured those solutions which addressed corporate treasury issues in China specifically, whether among local Chinese companies or international companies with operations in China.

Winner: Henkel, Fabian Boklage 46After years of having a debt laden operation in China, Henkel has been generating strong cash flows in the country since 2009. “Faced with unpredictable regulatory conditions and a rapidly changing economic environment, Henkel needed to overcome the challenge of managing its cash surplus more effectively,” says Fabian Boklage, Regional Treasurer, Asia Pacific. Henkel therefore turned to J.P. Morgan Asset Management and its onshore AAA rated RMB money market fund (MMF).

Highly Commended: Sany Group, Dai Shuai 48The fast pace of growth of Sany from inception to the impressive global scale it enjoys today rendered it essential to have centralised and automated treasury and cash management processes to facilitate management control, optimise process efficiency and reduce the possibility of human error by removing manual processing to the fullest extent possible. These objectives were achieved by working closely with Deutsche Bank.



One to WatchIntended to capture an idea in the pipeline, this category was for those grand designs which demonstrate the potential for best practice and/or innovation within the treasury/finance function. Companies nominated themselves where they believed they could demonstrate this potential in areas such as audit and compliance, procurement, trading, supply chain – or the use of any type of technology, process, system or procedure which fitted the category.

Winner: RSA Insurance, William McDonnell 49Inefficient operations and processes had left RSA, like many market participants, struggling with the problems of excessive liquidity, counterparty default risk, and complex reconciliation and settlement processes. “The Sorrento initiative is aimed at addressing the systemic issues that arise from these ineffective processes and delivering market-level improvements in operational efficiency, transparency, control and capital efficiency,” explains William McDonnell, RSA’s Group Financial Controller.

Highly Commended: Google, Joe Stanfill 50Every quarter, Google’s accounting team had been downloading excel-based gain/loss reports from State Street custody accounting, filtering and selecting items for more detailed review. In Q1 2012, Google implemented an issuer level credit modelling framework, custom developed by doctorate researchers at Moody’s Credit Research, to enhance the precision, quality, and efficiency of what had, previously, been a highly manual and effort-intensive asset impairments process.

Highly Commended: Merck, Jörg Bermüller 51Throughout the company’s global operations, each of Merck’s subsidiaries is responsible for their own guarantee for business transactions embarked upon in their particular locality. “We realised that the existing guarantee structure was not efficient and wanted to centralise a group-wide bank guarantee scheme,” says Jörg Bermüller, Head of Cash and Risk Management at Merck. The company used this as an opportunity to establish a standardised global process which would also allow potential for improvement.

Best in Class BenchmarkingThis was another new category for 2012 in response to the increasing use of Key Performance Indicators (KPIs) within the treasury function, as well as the growing appetite for benchmarking against the industry’s best performers and/or best practices.

Winner: SAP AG, Andreas Hartmann 52SAP was awarded the ‘Best in Class Benchmarking’ accolade for its efforts relating to overall working capital management. This winning project, led by the company’s global treasury, was set up to improve the way the company used its working capital. The scope of the project was not limited to improving financial data, but was to include other areas, such as remuneration schemes. One of the most important aspects of the project was to increase transparency over the company’s processes. This was done by measuring changes using scalable Key Performance Indicators (KPIs).

Highly Commended: Bharti Airtel Ltd, Manish Kapoor 53The telecoms industry is one of the newest and fastest growing markets in India. However, the industry is still adapting, always searching for the best possible methodology to stabilise daily operations, especially as the numerous controls that are enforced by government agencies continue to evolve. With business conditions that are constantly changing, benchmarking processes is a vital step towards increasing operational efficiency. Bharti Airtel sought to achieve its benchmarking goals by means of establishing a shared service centre (SSC).



Winner – Treasury Today’s Top Treasury Team

Toyota Financial ServicesPaul Boodee

Director, Americas Region Finance

This year’s coveted Top Treasury Team Award goes to the Treasury Team at Toyota Financial Services

‘The Passionate Pursuit of Perfection’ is more than just a Lexus slogan. It is a mantra shared across all of Toyota. This is especially true for Toyota Financial Services (TFS) and its US treasury team based in Torrance, California. Despite the ongoing credit crisis and the Toyota product recalls that occurred prior to 2011, the company managed to rise above adversity and remain innovative while still providing uninterrupted, cost-competitive funding for its organisation, supported by an enhanced risk management framework.

TFS was the first corporate to initiate daily collateral exchanges with zero thresholds and same day settlement with its counterparties.

As it braced itself for 2011, TFS built upon the experiences of past crises to position itself for a changing regulatory environment and volatile global market. Treasury’s goal of maintaining its position of competitive strength by staying ahead of the curve and ahead of its peers would be achieved by engaging associates cross-functionally, by improving operational efficiency (at minimal cost) and by fostering internal innovation through delivery of the following objectives:

Nicholas Ro, Wei Shi, Jeff Carter and Jiming Chen collecting on behalf of Paul Boodee


• Significantly reduce counterparty credit risk.

• Reduce liquidity risk and enhance balance sheet flexibility with new diversified funding sources and improved time to market for asset-backed issuances.

• Ensure affiliates that are located in developing/strategically relevant markets have stable funding sources.

• Reduce the enterprise and operational risk of managing the compliance-related requirements of TFS’ numerous deal documents and establish readiness for potential new regulations.

Continuous improvement“Treasury’s approach is driven by the Toyota Way, or guiding principles that emphasise a culture of ‘Kaizen’, or continuous improvement, as well as respect for people,” says Wei Shi, Vice President, Treasury, Finance and Analytics at Toyota Financial Services. This approach fosters cross-functional collaboration and supports leveraging technology to deliver internally-developed solutions, which has helped establish the treasury’s current strategic position. Kaizen therefore played a key role in the success of many projects that enabled the team to meet its 2011 objectives.

“For example, TFS was the first corporate to initiate daily collateral exchanges with zero thresholds and same day settlement with its counterparties. Through associate engagement and by leveraging our treasury technology, TFS transformed a previously manual monthly process to a daily, automated, paperless process. Consequently, resource requirements were reduced from eight to three and total processing time was reduced from nine hours per day to one hour, truly exemplifying our Kaizen culture,” explains Shi. Furthermore, the company’s valuations team achieved 100% validation and 99% internal valuation of derivative deals through the implementation of Numerix and development in Wallstreet Suite (TFS’ system of record for debt, derivatives and investments). By doing this, the company succeeded in eliminating its dependence on counterparty values.

The front office of TFS’ treasury played its part in this enhancement project. The liquidity that was released through the new daily collateral exchange process led TFS to leverage Bloomberg’s FX forecasting models to improve cash flow modelling capabilities, allowing optimisation of its short-term investment portfolio. Separately, the front office also partnered with several internal and external parties to develop and execute TFS’ first ever asset-backed revolving conduit transaction, as well as becoming the first corporate to deliver a unique, $3 billion issuance platform that converts TFS’ assets into rated, registered ABS securities and strengthens TFS’ working capital profile.

Following the success of this approach, inter-company liquidity solutions are under evaluation for other emerging market affiliates.

The middle office designed and developed a compliance document database that leverages SQL Server and Microsoft SharePoint technologies. This allows paper documents to be stored digitally and relevant details and information catalogued appropriately in the company’s database. This solution facilitates the query of representation/warranty requirements and covenant sign-offs.

Elsewhere, in collaboration with its international and local treasuries, TFS established an innovative, sovereign risk protected inter-company funding facility for its Brazilian affiliate. According to Shi, “Following the success of this approach, inter-company liquidity solutions are under evaluation for other emerging market affiliates.”

Less is moreBy leveraging technology and maximising associates’ strengths and core competencies, treasury has built highly effective — yet cost effective — solutions and capabilities to weather future storms. “All of the solutions developed and implemented by TFS were completed on time, on budget and with minimal licensing, consulting and development costs”, says Shi. As envisioned, TFS treasury is now strongly positioned for the spate of regulations coming down the tracks and to deal with the unpredictable financial market. This is due to the achievement of its plethora of goals, and the significant benefits of its successful projects and solutions. These include:

• Counterparty credit exposure has been reduced from $1,000m to less than $100m through the implementation of a new highly efficient daily collateral exchange process.

• TFS Treasury can support profitable asset originations, regardless of capital markets stress, given improved balance sheet flexibility provided by innovative funding tools like the new asset-backed revolving conduit (TORC) and retained asset-backed securities (ABS) portfolio.

• Debt compliance documentation (representation and warranty certifications, covenant management) are now maintained in an automated and auditable database where end users can quickly query an entire set of more than 80 deal documents (greater than 7,000 clauses) should internal parties or external regulators require.

• TFS emerging markets affiliates with inter-company lending facilities are protected from country risk through sovereign risk mitigation structures.

Treasury Today’s Top Treasury Team – an Award for overall excellence


Toyota Financial Services (TFS) is the finance and insurance brand for Toyota in the US, offering retail auto financing and leasing through Toyota Motor Credit Corporation (TMCC). TFS currently employs over 3,300 associates throughout the US, and has managed assets totalling nearly $89 billion.

“The most significant benefit to arise out of TFS’ strategic positioning is a strengthened, engaged and collaborative team of associates, allowing us to achieve our business objectives in the most efficient and most cost-effective manner,” Shi explains. “For example, establishing the daily collateral exchange process impacted each area within treasury: the front office had to rework credit support agreements (CSA) with all 23 counterparties – many were required to post significant collateral; the middle office needed to upgrade valuation systems; and our treasury operations team had to completely re-engineer its processes and systems to automate the daily valuation, exchange, reporting and controls. Clearly this project would not have been successful or as effective without such cross-functional collaboration.”

TFS treasury is certainly proud of these achievements; however, in the spirit of Kaizen they represent only one chapter in our ongoing pursuit of perfection.

In addition, TFS has realised weighty economic benefits due to the success of these solutions. Where daily collateral exchange is concerned, the reduction of counterparty risk has saved TFS $50m, swap costs have been reduced by $20m annually and interest expense was reduced by $30m from lower funding needs due to collateral received. This compares to a mere $100,000 for total project costs.

For the compliance database, the company was quoted in excess of $10,000 per deal (in the region of $800,000 for the entire portfolio) for an externally-developed solution. However, the solution developed internally required no licensing or consulting costs.

Furthermore, the inter-company lending facility for global affiliates has achieved a $25m saving through reduced interest expense, while optimisation of the risk/duration of the short-term investment portfolio is currently earning an additional interest income of $10m annually for the company.

Shi concludes: “TFS treasury is certainly proud of these achievements; however, in the spirit of Kaizen they represent only one chapter in our ongoing pursuit of perfection.”

Treasury Today’s Top Treasury Team – an Award for overall excellence


Highly Commended

Treasury Today’s Top Treasury Team

AstraZenecaPatricia Greenfield

Treasury Director

Andrew MarshallSystems Project Manager

Patricia Greenfield, Andrew Marshall and Ian Brimicombe from AstraZeneca

and Nick Blake, J.P. Morgan

AstraZeneca is a global, innovation-driven, integrated biopharmaceutical company with 61,000 employees worldwide. It discovers, develops, manufactures and markets prescription medicines for six important areas of healthcare, which include some of the world’s most serious illnesses: cancer, cardiovascular, gastrointestinal, infection, neuroscience, and respiratory and inflammation.

in partnership with

During the acquisition and subsequent integration of MedImmune in 2007, it became clear that AstraZeneca’s treasury infrastructure and processes were less than efficient. Meanwhile, as the company evolved, AstraZeneca’s existing treasury management system (TMS) was no longer able to keep up with its growing needs. Consequently, AstraZeneca realised that investment in systems was going to be essential, not just for the treasury’s needs today, but for at least ten years into the future.

“With only 11 people working in the global treasury, we were looking to increase headcount. But we also hoped that by eliminating inefficient manual processes, the efficiency of the team could be improved to the extent that staff could undertake more strategic tasks, take responsibility for specific areas and benefit from a more defined career path than in the past,” explains Patricia Greenfield, Treasury Director at AstraZeneca.

But dealing with the shortcomings of existing processes can often delay the introduction of new ones. In order to overcome this, three contractors were brought onto the AstraZeneca treasury team to support the manual day-to-day processes while the transformation took place. Moving systems to the new was also a challenge from a people management perspective, says Greenfield. “Over time, people become comfortable with familiar workarounds and manual processes, despite the inefficiencies.” Nevertheless, the solution was successfully implemented. It saw AstraZeneca’s back office treasury functions outsourced to J.P. Morgan Back Office Services and the day-to-day management of all critical technical interfaces outsourced to Bank of America Merrill Lynch Managed Services.

Elsewhere the new TMS provided critical areas of functionality that had previously been absent or weak, such as risk management, liquidity and cash flow forecasting. In addition, a complete review of the company’s banking partners was

undertaken with the goal of optimising liquidity management by introducing zero balancing cash concentration.

Finally, the existing obsolete netting centre was replaced with a new multilateral netting centre. Says Greenfield: “As well as performing ‘straightforward’ netting, the new system acts as a platform for inter-company financing and credit processes (whereby the treasury provides subsidiaries with invoice settlement credit terms) for in excess of 90 operating entities.”

To ensure that the company not only builds on its achievements to date, but continues to operate at the cutting edge of innovation and best practice, AstraZeneca also took the unusual step of retaining the services of a specialist, external consultancy (SLG Consultants) to provide ongoing support and guidance.

Culminating in February 2012, the transformation project resulted in benefits such as reducing the length of the month-end reporting process by 25%. When added to other significant efficiency improvements this equates to time savings in excess of 300 days a year. As a result of the transformation project, exceptions have also been virtually eliminated. Additionally, intraday balances are now available in real-time. These are automatically generated using SWIFT MT942 messages, enabling treasury staff access to up-to-the-minute cash positions for all global bank accounts. “AstraZeneca’s treasury acts as an in-house bank for the group. Following the transformation project, front office workers are now able to access accurate positions when they start work at 9am. Before the project, this could not be achieved before midday,” adds Greenfield.

The next phase of the project – to support the company’s liquidity management and FX activities in Latin America more effectively – is currently underway.


Issued and approved by JPMorgan Chase Bank, National Association, London Branch authorised and regulated by the Financial Services Authority. J.P. Morgan is the marketing name for the treasury services businesses of JPMorgan Chase Bank, N.A. and its subsidiaries worldwide. ©2012 JPMorgan Chase & Co. All rights reserved.

Congratulations

To the team at AstraZeneca for your award in the field of Treasury Today’s Top Treasury Team.

Your commitment to best practice and innovation is admirable and J.P. Morgan Treasury Services is honoured to be associated with your award winning solution.

We look forward to helping you and our other clients gain further success in 2013.

jpmorgan.com/ts

115330 Adam Smith Treasury Today R4 FIN.indd 2 6/22/2012 11:33:15 AM


Congratulations

To the team at AstraZeneca for your award in the field of Treasury Today’s Top Treasury Team.



jpmorgan.com/ts


Highly Commended

Treasury Today’s Top Treasury Team

British CouncilPeter Lay

Head of Treasury and Banking

Several years ago, the British Council had 15 people working in the treasury department as everything was very manual, with treasury essentially a support function to the payables department. Cash investments were held short-term and a highly manual FX purchasing function, with a lack of visibility on cash flows, meant that natural currency hedges were not optimised. Over the past five years, the British Council’s treasury hub has been modernised and it now supports more effectively the company’s banking and treasury activities across 110 countries. The front office (of which there are four people) is based in London and the back office is located in the shared service centre (SSC) in Noida, Delhi – a consolidation of five different SSCs over the last four years.

Accuracy remains a key objective for the British Council, as does the continued engagement of non-finance staff worldwide to inform and improve financial data. This gives the treasury team the best opportunity to effectively manage cash, working capital needs overseas, investments, FX exposures and counterparty risk. In a mere 24 months, the running costs of the company’s UK treasury site have been reduced by two-thirds. Automated dealing solutions have been implemented and cash flow returns are now activated for all countries with a 100% monthly return rate and forward FX management has been introduced.

“Just a year ago we were buying around £75m in foreign exchange to fund our overseas countries and this year the figure is just over £50m. This is a consequence of a combination of more effective local currency cash management and growing local cash generation funding out in-country currency expenditure needs,” according to Peter Lay, Head of Treasury and Banking, the British Council.

Interest returns on cash have been more than doubled in a flat short-term interest rate environment for sterling and euro funds,

whilst rigorously managing and monitoring counterparty and sovereign risk. At the same time, the British Council’s treasury has been able to release in excess of £35m of cash previously considered trapped overseas by working with banks and central banks to significantly reduce the exposure of currency deposits to sterling.

The British Council’s three big banks are HSBC, Standard Chartered, and Citi. These three act as the company’s virtual host-to-host banking providers for the ERP system (SAP). With up to 80% of bank balances reporting into SAP, there is impressive visibility on the cash balances across the bank accounts, readily available. These banks are the payment and electronic statements channels into domestic ACH processing for each of the countries in which the company operates. In terms of recognising and determining the best banks for its central treasury operations, the British Council aims to ensure that its solutions for operations globally are provided by key participant banks for its London treasury needs. “Ensuring strong relationship ties and cultivating a holistic banking relationship has become very important to the company’s treasury team,” Lay adds.

Prior to the 2008 crisis, the company’s cash was actually concentrated with fewer banks, albeit all with an A1/P1 rating but a tip off led them to transfer their cash, before the financial crash, to more secure institutions. By investing over a longer-term horizon with better visibility over liquidity, the British Council has established a layered investment approach following a rising yield curve. This has effectively enhanced yield returns from £275,000 to £800,000 in 2010/2011. The charity also sees significant opportunities in making sure working capital held overseas works equally as hard in 2012/2013, in addition to realising a vanilla TMS to further automate and improve current treasury activities.

The British Council is the world’s leading cultural relations organisation, a registered charity in England, Scotland and Wales operating under Royal Charter, using English, arts, and education and society – the best of the UK’s great cultural assets – to bring people together and to attract partners to working with the UK.


The British cocoa grower and chocolatier has shops in key locations across the UK as well as in Amsterdam, the US and soon Copenhagen. The Chocolate Tasting Club has 100,000 members. The company manufactures in Cambridgeshire and employs over 800 people.

WinnerJudges’ Choice

Hotel ChocolatPeter Harris

Co-Founder

A British chocolatier, Hotel Chocolat is one of the world’s few chocolate makers to actually grow cocoa. Originally a web and catalogue business founded by Angus Thirwell and Peter Harris, the first of many Hotel Chocolat stores appeared on the UK high street in 2004. There are currently over 60 stores in the UK, and operations abroad in the US and Europe. Hotel Chocolat was looking to raise finance in order to develop its factory in Cambridgeshire creating many new jobs. The company also wished to open more retail outlets in the UK and expand its overseas operations. There were plans to build an eco-chocolate factory on its site in St Lucia, where the company grows cocoa in its privately owned cocoa plantation, Rabot Estate. But of course, all this required funds.In addition to traditional bank financing Hotel Chocolat was keen to explore less conventional financing opportunities. What the company came up with was the innovative idea of borrowing money from its customers and paying their returns in chocolate!

“Two years before the chocolate bond was launched, the company wrote to some of the members of its Chocolate Tasting Club and asked them whether they would be interested in investing. Following the positive response, a year later the company carried out further research to verify the results,” explains Peter Harris, Co-Founder of Hotel Chocolat. Once the decision had been made to pursue the project, the company worked with lawyers and accountants to develop the concept, which was classified as a ‘financial promotion’ and non-tradable. As such, it did not require formal Financial Services Authority (FSA) approval.

When the chocolate bond was launched, the 100,000 members of the Chocolate Tasting Club were invited to invest

either £2,000 or £4,000 in three-year bonds which paid a gross annual return of 6.72% and 7.29% respectively. The return is paid in the form of deliveries of chocolate – six boxes each year for the £2,000 bondholders, and 13 boxes for the £4,000 bondholders. The invitation which the company sent to its members provided details of the chocolate bond and informed members about what the funds would be used for.

“The bond succeeded in raising £3.7m and we were naturally delighted with this uptake,” says Harris. In order to build on this success, six months later Hotel Chocolat wrote to the bondholders who had invested the lower amount of £2,000, inviting them to upgrade to the £4,000 bond enabling those members to enjoy free chocolates for a full year. As a result of this exercise, the company raised an additional £360,000.

“The relationship with our customers is one of the most powerful things that we have at Hotel Chocolat,” says Harris. “The major reason why this was very successful is that our customers like us as a business and want us to be around for years to come. People like to support the businesses that they value. Our customers respect the fact that we are specialists in chocolates; they like the style of our business from its ethical side to its authenticity and its originality, and they are keen to support that. So when we approached them, people said they were really keen – and ultimately that showed in their bond investments.” By launching a unique three-year ‘chocolate bond’, Hotel Chocolat succeeded in raising over £4m from its customers in order to fund the company’s expansion plans. It is likely that further chocolate bonds will be offered in the future – and indeed, a number of customers have expressed regret that they didn’t invest when the bonds were initially available.


WinnerFirst Class Bank

Relationship Management

British CouncilPeter Lay

Head of Treasury and Banking

Steven Marshall, Standard Chartered, Peter Lay, and Inci Yalman, Standard Chartered

A collaborative project between the British Council, SAP and Standard Chartered allowed the charity to automate its host-to-host payments solution across East and West Africa. The judging panel at Treasury Today felt this was a remarkable achievement because the treasury experienced little difficulty when it came to implementing its host-to-host ACH payments solution in the region. What is more, the Council was rolling out another banking solution in Asia – in Pakistan, Afghanistan, and Nepal – at the same time. As a result, this meant that the treasury faced significant logistical challenges in these regions, relating to its banking partners.

For example, in the case of Pakistan, the central bank clearing system had not been brought on stream so the treasury team had to work with Standard Chartered to develop a work-around that involved the bank’s ‘clearing for vendors’ facility in the region. “It is to Standard Chartered’s credit that they have the relationship imagination and commitment to offer clients like us front of house access for customer banking needs in places like Karachi, where, without the bank’s support we would not be able to reach out and offer access to our English, education and cultural opportunities,” says Peter Lay, Head of Treasury and Banking at the British Council.

From Sierra Leone to Ghana across to Uganda, Kenya and Tanzania, the local banking expertise and engagement from Standard Chartered supports regional staff and continues to push the envelope for delivering the latest technological solutions. This will enable customers to access the British Council within an increasingly digital environment where mobile phone devices demand the Council’s attention.

“We needed host-to-host payments in very different contexts across some challenging countries and we also needed to be able to deliver an XML solution. This has proved to be the most effective payments delivery channel with very little support intervention and great reliability,” explains Lay.

The solution offered by Standard Chartered Bank demonstrates ‘the art of the possible’ with SAP/host-to-host integration with a bank across probably the most diverse and difficult geographical country propositions into the charity’s India Shared Service Centre. The Council was able to leverage existing SAP technologies that it had installed and SAP’s NetWeaver was just what the Council was looking for when it came to integrating its ERP system and banking platforms.

To this end, the Council focused on establishing a repeatable global solution that could be fine-tuned to meet local requirements. This approach allowed the British Council to move the solution from Beijing to Delhi seamlessly. “What’s been so brilliant about the solution is that we can run our payments in the many countries in which we operate but we can also run our payments from one centralised solution, without manual intervention.” As a result of the new SAP solution, the Council has been able to consolidate its five regional hubs into one global centre that supports 110 countries.

“The automated integration between The British Council’s SAP ERP and our banking partners was the best fit for our business needs. All in all, it was a great success thanks to a low total cost of ownership, the usage of a single global blueprint to facilitate on-time regional rollouts, and also the fact that we were able to leverage existing SAP software and in-house expertise.”

Greater automation has also improved process efficiency at the charity although transactional identification and improving reconciliation automation remain challenges. The British Council has however significantly reduced the time it needs to conduct management control. The new banking solution also supports the organisation’s goal to centralise operations and reduce reliance on regional and in country resource administration, as demonstrated by the consolidation of its five shared service centres to just one in Delhi, India.

The British Council is the world’s leading cultural relations organisation, a registered charity in England, Scotland and Wales operating under Royal Charter, using English, Arts, and Education and Society – the best of the UK’s great cultural assets – to bring people together and to attract partners to working with the UK.

in partnership with20 | treasurytoday Adam Smith Awards © August 2012

Royal FrieslandCampina provides people all over the world with food that is rich in valuable nutrients. Its product range consists of dairy drinks, baby and infant food, cheese, butter, cream, desserts and dairy-based functional ingredients. Annual revenue of Royal FrieslandCampina amounts to €9.6 billion. FrieslandCampina employs 19,000 people in 26 countries.

in partnership with

Highly Commended

First Class Bank Relationship

Management

Royal FrieslandCampina

Klaas Springer Director Corporate Treasury

Eleanor Hill, Treasury Today, Klaas Springer and Sander van Tol, Zanders

With the help of Zanders Consultancy, Royal FrieslandCampina’s treasury developed an innovative solution that it refers to as the ‘Wallet Sizing’ Model. The wallet includes all the company’s worldwide banking partners and paved the way for renegotiation of an ‘amend and extend’ of the company’s €1 billion general purpose syndicated credit facility in the difficult market conditions that prevailed in the last quarter of 2011. “The market for bank financing had worsened substantially since early August, and banks generally were finding it difficult to point out where the market stands,” explains Klaas Springer, Director Corporate Treasury at Royal FrieslandCampina.

“In August, we decided to sound our banking group out regarding a potential extension of our existing €1 billion revolving credit facility in combination with potential amendments to pricing,” continues Springer. “This action was largely driven by recent developments raising general concerns on bank creditworthiness and willingness to provide credit. We focused on key relationship banks. Our aim in reviewing our bank relationships on a recurring yearly basis is to achieve a balanced partnership with our banks. We used Zanders’ Wallet Distribution Tool to do this.”

This led to the development of the Wallet Sizing Model, which is tailor made for and maintainable by Royal FrieslandCampina. The findings derived from this Model allowed the company to prepare itself for one-on-one negotiations with its syndicated banking partners when it came time to renegotiate the terms of its revolving credit facility. The company also negotiated and completed, in difficult market circumstances, an ‘amend and extend’ agreement. This resulted in its €1 billion facility being extended out to August 2015. This also substantially lowered margins – especially at higher leverage ratios.

“In spite of the current tough situation in the financial world, we have once again succeeded in improving our loan conditions. We were able to do this because of our healthy financial position and good performance. Amending the conditions of the revolving credit facility will generate an annual saving of several million euros,” says Kees Gielen, Chief Financial Officer of Royal FrieslandCampina.

The new facility is designed to make Royal FrieslandCampina ‘crisis proof’ in the years to come, which is also strategically crucial since the company is in an acquisitive mode. The next phase in bank relationship management will be finding the right balance in credit commitment and banks’ earnings. This will afford the company certainty of funds in the Eurozone, where banks are inclined to reduce commitments.

“Clearly, a five-year refinancing in a new deal was preferable from the perspective of security of funds. However, the payback period for earning back the new upfront fees is between one and three years, depending on how often we use the facility and most importantly our leverage. A five-year refinancing would also probably have implied a reduction of the facility amount with €100m and writing off around €5m of old fees that were still to be amortised under the existing facility. Therefore the amend and extend to 2015 of the existing facility was our best go”. The use of the Wallet Sizing Model in the context of the refinancing exercise shows great innovation. Says Springer: “Our bankers have confirmed that this was a really unique exercise. It was successful in times that almost nobody was able to mirror because FrieslandCampina – with an annual turnover of €9.6 billion – only has a small dedicated team of four people in its front office.”


The A.P. Moller–Maersk Group is a worldwide conglomerate, operating in some 130 countries with a workforce of some 108,000 employees. In addition to owning one of the world’s largest shipping companies, Moller-Maersk is involved in a wide range of activities in the energy, logistics, retail and manufacturing industries.

Highly Commended

First Class Bank Relationship

Management

A.P. Moller-MaerskJulia PerssonDeputy Head of

Corporate Treasury

Zainab Devaswala and Julia Persson

In mid-2011, Maersk successfully piloted a web-based e-sourcing tool for a cash management tender for one of its business units. With the new software tool, the company was able to configure workflow to set up events, timelines, cost models, and automatically calculate pricing based on pre-defined criteria embedded in the cost model. This allowed the company to create and maintain scenarios to tailor bank data as per business requirements and drive negotiations among internal stakeholders.

The process of making transactional bank relationship transparent also involved setting up a global SWIFT project, which was successfully implemented in 2010 with all major partner banks. “We have also devised a workflow to gain control over bank account opening and closing processes. All bank account opening requests are approved centrally by the Maersk head office; post evaluation of certain elements for example, purpose, geographical location, currency, etc. Also, we recently conducted eBAM testing to evaluate if we would be able to improve the cash management documentation process with the aim of achieving significant efficiency in handling documentation with the help of an eBAM application for account opening and other services through SWIFT,” says Julia Persson, Deputy Head of Corporate Treasury.

The e-sourcing tool allows Maersk to electronically gather information from its business units and banks based on pre-defined material requesting information on pricing, cash management, payment services, and technical capabilities. “A request for information (RFI) questionnaire was designed in the form of a binary ‘yes’ or ‘no’ answer with the option to provide comments, if necessary. This resulted in easier and better analysis of the feedback that was received,” Persson explains. The tender material is then imported to an e-sourcing tool, thereby creating an e-sourcing event. Afterwards, banks

receive access to this event to present proposals by logging onto the e-tool online. This allows analysis of feedback to be carried out using reports and negotiation guides available on the e-sourcing tool. “For each tender we are creating a set of weighted coefficients to determine priorities on the bank capabilities. As an outcome of the tender analysis we are able to present transparent basis for decision for all stakeholders and provide feedback to the participating banks,” explains Persson.

All the information and feedback is managed in the online tool and has significantly reduced use of multiple and complex Excel spreadsheets and MS Word documents. Banks and subsidiaries responded positively to the change and recognised the benefits the system brought.

“Today, subsidiaries are approaching the treasury to get approval for the opening/closing of bank accounts. End of day balances are reported through SWIFT for all bank accounts with partner banks creating visibility of cash balances worldwide. All new accounts opened with partner banks are set up for daily MT940 reporting into the TMS. A regular review of transaction charges is carried out to reconcile fees charged on accounts, are in accordance to the agreed pricing with partner banks. The results are shared with banks to ensure settlement and alignment in case of discrepancies,” says Persson.

One of the major benefits of the solution is the reduction in complexity when it comes to analysing information and data received from its partner banks – both in terms of pricing and service offerings. The web-based solution also allows Maersk to focus on the most important elements of the tender and rate banks based on the feedback they give. Indeed, as part of its global bank relationships, Maersk has established a regular exchange of bank account inventory with all its major banking group partners.


WinnerBest Cash

Management Solution

MerckJörg BermüllerHead of Cash and Risk Management

Jörg Bermüller, Tanja Verseck, J.P. Morgan, Jörg Konrath, BNP Paribas

and Thomas Eberle, Deutsche Bank

Four major payment currencies (EUR, USD, CHF and GBP) represent 70% of the total transaction volume at Merck. Multiple cash pool structures for each currency had been in existence since the company’s initial set-up and/or inherited through acquisitions in 2006 and 2010. This led to inefficient usage of liquidity, with no clear bank-country-currency allocation and limited access to liquidity of non-participating entities.

“Each of these cash pools created its own workload, including documentation for each structure, different delivery deadlines of account statements and unfavourable local bank commissions agreed by non-participating subsidiaries. Economies of scale were not used efficiently as transaction volumes were spread over several banking partners, with the cash pool structure determined by the decision of subsidiaries’ particular banking partner,” explains Jörg Bermüller, Head of Cash and Risk Management at Merck. “We were convinced that an efficient cash pool structure could be set up and that our processes could be improved to meet the company’s business requirements.”

The first action point was to get the right banks on board. After a highly detailed and competitive request for proposal (RFP) that focused on increasing process efficiency in account receivables, bank processing, IT services and treasury processes, Merck chose BNP Paribas, J.P. Morgan and Deutsche Bank – this was a group wide decision. “Within nine months, a project team of four treasury people (without external consultant support and in addition to their daily tasks) managed to restructure this assortment of currency cash pools,” says Bermüller. “A clear bank-country-currency allocation was established to bring the overall cost structure to a minimum.

The number of cash pools was reduced by five and clear principles were established for each of the banking partners.”

When negotiations on terms and conditions of the cash concentration, eBanking and service agreements were complete, documents for account opening from all participating subsidiaries were collected, including the Power of Attorney (PoA). Merck then facilitated the training of 105 users through several webinar sessions (for those subsidiaries in different time zones) and internal IT support during the entire implementation phase for the required programming of bank connections. Account opening by corporate treasury was then centralised for all subsidiaries. This was made possible by the PoAs.

Despite the extremely low one-time implementation costs (€51,000), the benefits of the project have been impressive. Fewer banking partners means documentation requirements and the daily workload in banking communication and cash management are significantly reduced. Furthermore, economies of scale are used more effectively as only three financial institutions are used for payments. “Also, using business transaction codes (BTCs) in MT940 messages allows the automatic translation of the entire account statement into the ERP and in-house bank software. In combination with the reduced number of master accounts, this contributes towards faster cash management reconciliation,” says Bermüller.

Since the structural overhaul, more favourable interest rates (on average 25bps lower) have been achieved while value dates on lockbox clearing have been reduced from D+2 to D+1. Annual fees have been halved from €1m to €500,000 and Merck expects company savings to total €2m over the next five years.

Merck KGaA in Darmstadt is the oldest pharmaceutical and chemical company in the world. It conducts the operations in four divisions: Merck Serono, Consumer Health Care, Merck Millipore and Performance Materials. With 40,000 employees in 67 countries, Merck KGaA generated annual total revenues of €10.5 billion in 2011. Merck is last year’s winner of Treasury Today’s Top Treasury Team Award.

in partnership with treasurytoday Adam Smith Awards © August 2012 | 23


Congratulations

To the team at Merck for your award in the field of Best Cash Management Solution.



jpmorgan.com/ts


Diageo is the world’s leading premium drinks business with an outstanding collection of beverage alcohol brands across spirits, beer and wine. In approximately 180 markets, Diageo plc employs over 20,000 people around the world. With offices in 80 countries, Diageo also has manufacturing facilities across the globe including Great Britain, Ireland, United States, Canada, Spain, Italy, Africa, Latin America, Australia, India and the Caribbean.

Highly Commended

Best Cash Management Solution

DiageoSzilvia Zacsovics

Treasury Cash Manager

Lesley White, Bank of America Merrill Lynch and Szilvia Zacsovics

With Diageo’s European business generating £2.8 billion of its net global sales, the company was looking to enable instant access to cash across the region. Diageo also wanted to adopt seamless payables and receivables management, in order to minimise potential disruptions to its supply chain.

In search of a reliable and risk-managed solution to do this and enable the consolidation of cash flows in the UK while establishing centralised control out of London, Diageo chose to partner with Bank of America Merrill Lynch (BAML). This relationship allowed the company to run through a variety of different cash management scenarios and structures. In addition, BAML assisted in putting in place the right contingency measures to make sure the company was able to minimise any supply chain threats.

“Diageo can configure the parameters of the real-time sweep solution according to our exact requirements to provide control over our in-country cash positions. We also benefit from the ability to seamlessly move funds during the day, helping to reduce intraday liquidity risk,” says Szilvia Zacsovics, Treasury Cash Manager at Diageo.

Through the joint project, the company has managed to refine existing sweeping functionality to incorporate real-time benefits, as well as automatically calculating and pulling balances from third-party bank accounts in target countries. Funds can then be repatriated to the UK. Moreover, solutions such as multi-bank cash concentration and real-time sweeping mean that Diageo can consolidate and manage its cash in a central location (the UK), but also continue to maintain local bank relationships in operating countries.

“To ensure that cash is in the right place at the right time, the inter-bank liquidity structures were set up to work cohesively with automated real-time sweeps across BAML accounts in various countries,” explains Zacsovics. “Using an innovative combination of features, such as uni-directional timed movements, minimum/reverse sweeping, and percentage incremental sweeping amounts, we are now able to efficiently control the movement of cash as required.”

Post-implementation, Diageo has successfully managed to enhance control over its cash, while delivering significant returns for the business. Local payments are now funded by the centralised liquidity structure in London, on an ‘on demand’ basis so that little or no funds are held locally.

“This solution is highly scalable and can easily be extended to the entire cash pool, offering the company long-term protection during a period of economic instability. Already, the implementation has helped us to eliminate €25m intraday exposure on a monthly basis in the pilot-country where the solution was implemented first,” says Zacsovics. But there are bigger opportunities in the wider euro cash-pool. Given the successful roll-out in selected European jurisdictions, Diageo is actively working with BAML to extend the solution to other countries.

The company’s innovative liquidity structure enables mobility and availability of company cash through multi-bank, multicurrency solutions; providing enhanced visibility, control and efficient risk management. In these unprecedented economic times, Diageo’s foresight provides a good example of a smart solution that can help treasury teams to protect their funds in the event of a crisis.


Founded in 1975, Microsoft (NASDAQ ‘MSFT’) is the worldwide leader in software, services and solutions that help people and businesses realise their full potential. Microsoft employs over 90,000 staff globally and reported net revenue of nearly $70 billion in 2011. Microsoft is headquartered in Redmond, Washington, USA.

in partnership with

Highly Commended


MicrosoftJim Scurlock

Senior Manager, Cash Planning

Sunnie HoCash Planning Manager

Jim Scurlock, Barbara Harrison, Citi and Sunnie Ho

Microsoft runs a centralised treasury for more than 350 legal entities in 118 countries. The company has more than 1,100 bank accounts in over 100 institutions worldwide. At the height of the recent global economic crisis, each dollar held in local subsidiary managed accounts faced increased counterparty risk, sovereign risk, foreign exchange fluctuations, and risk of fraud.

To address these issues, and to reduce the exceedingly time-consuming and manual process of funding payroll for more than 200 subsidiaries, Microsoft’s Global Cash Management (GCM) and Global Cash Operations (GCO) teams worked with the company’s banking partner, Citi Global Transaction Services (GTS), to develop an appropriate strategy. “The company wished to reduce average daily balances by automating the collection sweeps and implementing a just-in-time funding model for subsidiary disbursements,” explains Jim Scurlock, Senior Manager, Cash Planning at Microsoft.

A cross-border inter-company zero balance account (ZBA) structure was put in place. According to Scurlock, Microsoft’s treasury faced two significant obstacles in executing its plan. “The first was a need for ZBA structure with customised text capability. Although many multinational banks have a ZBA product, no bank offered a solution to contain customised texts in the transaction details. However, this is critical to the subsidiary identification function of Microsoft’s in-house cash centre.” The treasury partnered with Citi to develop and implement a new global cash concentration product called the Global Concentration Engine, which allows customised text to be included.

The second hurdle was the need for automated accounting. To date, there has not been an inter-company ZBA solution that allows automated accounting within an in-house cash centre. “If Microsoft were to automate the collection of sweeps and enable just-in-time disbursements for hundreds

of accounts, the resources required to manually post accounting entries would be overwhelming,” says Sunnie Ho, Cash Planning Manager at Microsoft. “For that reason, the treasury department partnered with the internal IT team for 18 months to make a series of development changes to SAP.” Through this collaboration, the company managed to enable automated accounting via triggering of the general ledger entries based on the customised text that is included in the ZBA transaction.

With this new inter-company ZBA structure, the treasury has been able to maintain a zero balance with several hundred accounts in over 15 countries. “This has achieved 100% accounting automation, all at no cost to IT,” adds Ho. As a result of this solution, the company is now able to promptly transfer available balances to the parent accounts, thereby maximising investment return. Operational efficiency has also improved, saving treasury hundreds of hours in reviewing subsidiary cash balances and countless hours normally used for manually posting general entries due to automation. Since implementation, Microsoft has been able to achieve a reduction of more than $250m in average daily balances and an increase in monetary gains including over $250,000 in interest gains due to prompt collections. Further benefits include the enabling of cashless subsidiaries; reduced risks due to zero balances (which lowers sovereign risk); and a decrease in bank fees as a result of fewer wires.

In response to the European debt crisis in 2011 and more recent events, Microsoft’s treasury has been able to promptly put the company’s accounts in Ireland, Italy, and Spain into the ZBA structure. This has greatly reduced Microsoft’s cash exposure to high risk European countries. “This project truly allows Microsoft’s treasury to create an offensive strategy, mitigating risk instead of being on the defensive,” concludes Scurlock.


Highly Commended


SAPDamian Preisner

Treasury Operations and Processes

Remko Streng RBS, Andreas Knopf and Damian Preisner, SAP and Maha El Dimachki,

Bank of America Merrill Lynch

With more than 183,000 customers and 55,000 employees worldwide, automation has been a major goal of SAP’s global treasury in recent years. With the aim of reducing the support, effort and the total cost of ownership, the company wanted to implement one global payment format for the multiple banks it deals with across many different countries. At the same time, SAP was looking to promote flexibility in its bank partner selection, thereby reducing counterparty dependency.

The recent acquisition of Sybase Corporation and its subsequent integration into SAP’s ERP system allowed SAP the opportunity to further improve its treasury efficiency. The first step then was the implementation of cutting-edge XML CGI formats. SAP accomplished this with the assistance and consulting support of BPI Business Process Integration GmbH. Using one global payment format and payment status report for all banks across every region reduces processing time – at corporate and bank level – significantly. It also supports the concept of end-to-end processing and considerably increases central control of external payments within the running payment factory.

SAP is centralised and automated through the running of a global payment factory that handles thousands of daily payments for 55 subsidiaries across more than 45 countries. Payments are signed in the SAP ERP system and payment orders are transmitted to the banks out of the ERP System directly via SWIFTNet SCORE. The same flexible, secure and cost-efficient channel is used to collect the bank statements for SAP Group.

Bearing in mind that SAP intended to cover 18 countries with this brand new XML standard, the key challenge was to incorporate the new format into the already established payment factory. SAP used SAP Bank Communication Management (SAP BCM) solution in cooperation with SAP

NetWeaver Process Integration (SAP NW PI) and SWIFT with SWIFT Service Bureau for the entire end-to-end process which runs in the global payment factory. The XML payment file itself will be created in the SAP standard software SAP Payment Medium Workbench (SAP PMW) and to be precise here in the Data Medium Exchange Engine (DMEE). Very helpful was the support of SAP colleague Marton Luptak from Globalisation Services who is a SAP representative in Common Global Implementation (CGI) Workgroup together with Mark Crawford as a driver of the SAP-CGI Collaborative Development Workgroup. This new solution solves the corporate pain points of multiple payment instruments with regional/local differences and multiple bank relationships.

SAP partnered with Bank of America Merrill Lynch (BAML) and Royal Bank of Scotland (RBS) for enabling full implementation roll out across its subsidiaries. RBS managed the European roll-out from walk-through testing to final implementation for ten countries in just six months while BAML supported the Asian roll-out from walk-through testing to final implementation for eight countries within a six month timeframe.

Despite a challenging financial environment in which budget, time and resources were extremely stretched, the appropriate partnerships enabled a seamless delivery, allowing SAP to become one of the first large multinational corporates to deploy such a solution on this scale. The function of the credit transfer format is to issue payment orders and this is supported by the payment status report which monitors these payments and provides excellent status details. Seen as an important strategic technological support for SAP’s future growth, the new CGI solution ensures greater efficiencies and enables the company to operate at the lowest cost possible. Additionally, by using this functions compliance and transparency levels could be greatly improved.

As market leader in enterprise application software, SAP helps companies of all sizes and industries run better. The company‘s applications and services enable customers to operate profitably, adapt continuously, and grow sustainably. Nearly two-thirds of the world’s transaction revenue touches an SAP system. The company‘s customers include more than three-quarters of the Global Fortune 500. SAP received a Highly Commended Award in Best Corporate Debt Solution in 2010.


WinnerBest Short-Term

Investment Strategy

Toyota Financial Services

Nicholas RoNational Manager - Sales and Trading

In addition to global macroeconomic issues, Toyota Financial Services (TFS) was experiencing its own challenges due to automobile production disruptions from the Great East Japan earthquake and flooding in Thailand. This impacted TFS’ short-term investment portfolio (STIP) because the investment strategy centres its decisions on the cash flows required to fund future liquidity needs within a 12 month period. The key issue for the investment team was how to improve the company’s cash flow forecasts.

After analysing which area would have the most impact, TFS’ investment team focused on the bilateral collateral exchange process with its swap counterparties (23 in total). “We decided to move from a monthly to a daily exchange of collateral with zero credit thresholds and same-day settlement,” says Ro. While this reduced counterparty risk exposure, it increased the uncertainty of how much daily liquidity was necessary in the STIP. Since the $100 billion derivative portfolio has over $20 billion in cross-currency exposure, TFS’ objective was to estimate future collateral movements based on changes in foreign exchange rate forecasts.

By further analysing the company’s liquidity needs, TFS’ investment team segmented the STIP into categories based on specific functions, time horizons, and liquidity requirements. “We partnered with experts at Bloomberg and Wall Street Systems to identify FX rate movements as key factors influencing the daily collateral movement,” explains Ro. “We created scenarios to understand the derivative portfolio’s market value sensitivity to changes in FX rates.” This enabled the company to estimate the potential collateral movements.

By understanding the derivative portfolio’s sensitivity to foreign exchange rate movements and creating various scenarios for projected future currency values, TFS was able to estimate future collateral movements and make sound investment decisions. “Adding FX rate forecasts into TFS cash flow models created

a clearer understanding of how much operating cash was needed to meet potential daily collateral movements. By increasing the reliability of cash flow estimates, we could then use the excess liquidity for core cash investments,” summarises Ro. The yield of the STIP was increased by lengthening the investment maturities beyond the same-day horizon of bank accounts and money market funds. “For example, by allocating a portion of the cash to longer-dated US Treasuries, US Agencies, and A1+/P1 Certificates of Deposit, we have managed to improve the yield by 25 basis points. This increase has generated an additional $10m in annual income without sacrificing safety of principal.” says Ro.

Technology infrastructure was a critical component for the success of this initiative. In addition, TFS used Toyota’s Kaizen approach (Toyota’s methodology of process improvement) to improve existing infrastructure and operational processes.

As a result of this innovation, TFS now has a STIP strategy which can be applied to additional currencies from future currency swap transactions. This transformation resulted in TFS becoming the first corporate treasury to perform daily collateral exchanges with zero credit thresholds and same-day settlement. There were softer benefits to the solution too. “Throughout this process, TFS was able to create a ‘people development’ opportunity which enabled associates to ‘grow, perform and succeed’,” says Ro. Since this project involved analysing the impact of foreign exchange movements on its derivative portfolio, the TFS Treasury team hosted ‘knowledge sharing’ sessions with FX strategists from major investment banks which increased TFS associates’ understanding of the macro-economic themes and events influencing FX forward rates.

“Focusing on continuous process improvements while having a respect for people is part of Toyota’s core values. Being able to combine these important foundations of the Toyota culture created a higher performing organisation,” Ro adds.

Toyota Financial Services (TFS) is the finance and insurance brand for Toyota in the US, offering retail auto financing and leasing through Toyota Motor Credit Corporation (TMCC). TFS currently employs over 3,300 associates throughout the US, and has managed assets totaling nearly $89 billion.


Mattioli Woods is one of the UK’s leading providers of pension consultancy and wealth management services, advising over 4,000 clients throughout the UK and with assets under advice and administration in excess of £3.02 billion.

in partnership with

Highly Commended

Best Short-Term Investment Strategy

Mattioli Woods

Nathan ImlachFinance Director

Mark Slaviero, Mattioli Woods accepting on behalf of Nathan Imlach, with Suzanne

Burgoyne, Lloyds Bank

A pension consultancy and wealth management services provider, Mattioli Woods holds over £65m in more than 3,000 bank accounts for the company and its clients. With interest rates remaining low – and no obvious sign of improvement in these rates in the near future – the option of offering clients an attractive rate had become increasingly difficult for Mattioli Woods. Therefore, the company was looking for a solution which would increase the interest income on its customer accounts.

Mattioli Woods negotiated a tailored arrangement with one of its long-term banking partners, Lloyds Bank, to structure client pension accounts so that they could offer better and more competitive rates for their SIPP and SSAS pension schemes. Under the new bespoke structure, the company’s accounts were re-classified as retail-like funds, which generally attract a higher rate of interest than corporate accounts. In order to do this, the bank had to first secure approval from its retail pricing committee.

As a result of this re-classification, Mattioli Woods now benefits from a higher rate of return, some of which is passed on to the company’s customers. This makes the rates offered by Mattioli Woods more attractive than rates offered by many of its competitors. The new structure has also resulted in a lower administrative burden for Mattioli Woods, as processes have been streamlined and cost savings have been made for customers.

Sales and Marketing Director at Mattioli Woods, Murray Smith, explained: “In today’s environment of lean interest rates, the inescapable challenge for Mattioli Woods has been how to maintain a competitive edge in the pricing of more than 4,300 pension schemes we manage for clients.”

“In general, banks don’t offer pension fund clients the rates available to retail customers. We have managed, however, to work with our banking partner to re-classify client deposits as retail rather than wholesale. This allows us to offer our clients better rates than many other pension providers can access,” adds Smith.

The decision to re-classify the funds was an innovative approach to a contemporary issue which many businesses are currently facing. This ground breaking tactic was made possible by Lloyd’s interpretation of the Individual Liquidity Adequacy Standards (ILAS). This approach was tailored to the company’s specific business practices and would not have been suitable for all pension providers. Unlike many other pension providers, the client accounts held by Mattioli Woods are classified as ‘own name accounts’, where the member is co-trustee and is required to approve transactions made on the accounts. This was a key factor in determining the best solution for the company.

The custom-made solution has proved so successful that Mattioli Woods has decided to move funds held with other banks to Lloyds. There may also be opportunities to improve the benefits of the solution in the future; once the overall balance of the accounts reaches £100m, an even higher interest rate may be applicable.

As a result of the approach taken with Lloyds Bank, Mattioli Woods has been able to benefit from a higher interest income across its own name accounts, which has led in turn to improved customer satisfaction, a reduced administrative burden and cost savings resulting from efficiency improvements.


Highly Commended

Best Short-Term Investment Strategy

SAP AGAndreas Hartmann

Global Treasury – Head of Front Office

The mandate for SAP Global Treasury is to support the underlying operational business by having cash available at very short notice and ensuring that no default of counterparties or investments affects the operational liquidity or the strategic flexibility of the company. To cope with these requirements and the current financial market environment, SAP’s global treasury broadened its investment scope and developed a four pillar strategy consisting of term deposits, money market fund (MMF) investments, German T-bills and tri-party repo transactions. “For MMF investments, SAP is currently focusing on euro denominated government funds with AAA ratings and a stable net asset value (NAV),” explains Andreas Hartmann. “The purchased Bubills are transferred into our security account at Finanzagentur der Bundesrepublik Deutschland.”

The majority of SAP’s excess liquidity was, however, invested in term deposits with its core banks. Although the company had no doubt about the credit quality of these institutions, term deposits created a bulk risk, which the company wanted to reduce. In April 2011, Barclays introduced the tri-party repo, which is essentially a collateralised term deposit managed by an independent third-party agent. Following an initial internal review, SAP Global Treasury was impressed by the potential diversification benefits and the company decided to go ahead with the process proposed by Barclays.

“In all the discussions, prior to our partnership, we found the bank very supportive in addressing any questions around the tri-party repo process as well as solving specific withholding tax, legal, and accounting related issues,” says Hartmann. At the same time, SAP colleagues in the tax, legal, IFRS and German GAAP accounting departments also helped out. “Given the lean and highly automated approach we have towards treasury at SAP, it is imperative that any new instruments or processes do not create a substantial additional

manual workload for the department,” Hartmann explains. “With the tri-party repo, SAP was able to achieve its goal of straight-through processing in all areas of global treasury. Greater automation means less manual input is required from the team.”

To support this approach, the company introduced the tri-party repo to the SAP treasury management and ERP system. The implementation of this tool – which substantially increases flexibility regarding short-term investment decisions while creating benefits for all parties involved – has completed the fourth pillar of SAP’s cash investment strategy. Says Hartmann: “The solution illustrates the benefits of a corporation teaming up with a bank which ‘knows its customer’ and is able to provide expertise and tailor-made solutions in the context of corporate risk and liquidity management.”

With the approval of its Treasury Committee, SAP opened an account at Clearstream settlement facility in the weeks following the adoption of the new investment tool. This was to ensure smooth handling of the related transaction as a key safety element of the tri-party repo is that both parties to the repo must have cash and collateral accounts at the same tri-party agent. SAP defined bonds of selected non-financial corporations as eligible collateral for this account, resulting in the intended diversification benefits for their portfolio to reduce sovereign and financial institutions risks. Together with its internal stakeholders and Barclays, SAP agreed on and entered into the German global master repurchase agreement (GMRA). Furthermore, the relevant forms, (confirmation) processes and the related SAP standard documentation were established as part of this agreement. The successful project has helped SAP Global Treasury to implement standard documentation, including annex and forms which are now also in use with other tri-party repo core banks, thereby supporting standardisation and scalability.

As market leader in enterprise application software, SAP helps companies of all sizes and industries run better. The company‘s applications and services enable customers to operate profitably, adapt continuously and grow sustainably. Nearly two-thirds of the world’s transaction revenue touches a SAP system. The company‘s customers include more than three-quarters of the Global Fortune 500. SAP received a H/C Award in Best Corporate Debt Solution in 2010.


Rolls-Royce is a world-leading provider of power systems and services for use on land, at sea and in the air, and has established a strong position in global markets – civil aerospace, defence aerospace, marine and energy. The company employs over 40,000 people globally and reported annual underlying revenues of £11.3 billion in 2011.

WinnerBest Financial

Supply Chain Solution

Rolls-RoyceAndrew Leach

Executive Vice President –Purchase Finance

Andrew Leach and Bart Ras, Citi

Rolls-Royce has a very large number of vendors, many of which are small businesses producing highly technical and specialised parts for use in its products. Were any of these companies to cease production through the lack of finance, it could impact production for Rolls-Royce. For this reason, Rolls-Royce began planning a finance programme to support its global supply chains.

The purpose of the programme was to enable suppliers to benefit from the company’s superior credit rating and gain access to funds at lower interest rates than they would ordinarily have access to. Safeguarding the Rolls-Royce supply chain through one of the most volatile periods the financial markets have known, was also of paramount importance.

“The project represents a vital element in our strategy to ensure financial stability to key segments of our supply chain, particularly smaller and more vulnerable suppliers,” explains Andrew Leach, Executive Vice President – Purchase Finance at Rolls Royce. “The crucial requirements we had for the programme from the start were that it should remain cost competitive and sustainable in the longer term.”

In addition to the original requirements and objectives that were delivered by the Citi proposition, the project resulted in an improved payment approval process and enabled suppliers to get the maximum early payment through the supply chain finance programme. Rolls-Royce has also prompted improvements to Citi’s processes that have reduced the time taken to bring in suppliers and improve suppliers’ experience on all Citi programmes.

“This is now being seen in improved relationships with suppliers,” says Leach. “Our last supplier relationship survey showed a significant improvement in supplier relationships associated with the improved payment processes. This in turn motivates suppliers to give priority to Rolls-Royce over other customers, on issues ranging from access to new technology through to cost reduction.”

Unlike many traditional programmes, which generally focus on the pure economic driver of working capital release, the Rolls-Royce programme stood out in helping to minimise disruptions from supplier failure for a highly specialised supply chain and for products that require the highest levels of safety standards. Operationally, a programme objective was to enable Rolls-Royce to standardise payment terms – before the programme was in place Rolls-Royce had nearly 100 payment terms in place with its vendors. The company has now reduced this down to less than ten standard payment terms, which has contributed to an improved payments approval process and improved strategic relationships with its suppliers.

The programme has now been made available on a global basis in multiple currencies for both suppliers and Rolls-Royce. It initially covered major UK suppliers, and was subsequently extended to suppliers serviced by the Rolls-Royce European finance centre, North American finance centre and to suppliers servicing the Nordic business. This year, Rolls-Royce has expanded the programme to include Asia and has recently gone live with its first supplier to its new facility in Singapore.


Brocade leads the industry in providing comprehensive network solutions that help the world’s leading organisations transition smoothly to a virtualised world where applications and information reside anywhere. As a result, Brocade facilitates strategic business objectives such as consolidation, network convergence, virtualisation, and cloud computing. Today, Brocade solutions are used in over 90% of Global 1,000 data centres as well as in enterprise LANs and the largest service provider networks.

Brocade won a Highly Commended Adam Smith Award in 2011 for Effective Risk Management.

Highly Commended

Best AP/AR Solution

Brocade Communications

Systems IncYun Kong

Head of Foreign Exchange Operations

Ciaran Brady, Bank of America Merrill Lynch and Kevin McKenna from Brocade Communications

Systems accepting on behalf of Yun Kong

Brocade’s treasury helped its shared service centre (SSC) implement an electronic file delivery (EFD) platform with Bank of America Merrill Lynch for foreign subsidiary payroll batch payment processing. The solution replaces the old wire payment process for most foreign subsidiaries with over 1,000 employee payrolls. The treasury took the initiative to help improve corporate process efficiencies in many areas such as accounts payable (AP), accounts receivable (AR), general ledger (GL) and tax. The driver behind the project was that there were a few shortfalls with the existing FX wires and drafts module within the online tool the company was using, for example:

• Wires are not designed for batch payment processes. “Each month the AP team must manually input wires by modifying the date and value of each wire template. The team also needs to manually maintain wire templates for each payee,” says Yun Kong, Head of Foreign Exchange Operations, at Brocade.

• Due to the large number of transactions involved (1,000/month), it was taking three to four full days to input the wires into the system. There are also limitations in approving wires in batches.

• In addition, wires are more suitable for high-volume low frequency urgent payments, such as vendor payments and are not commonly used for payroll, because wires cost more than other types of payments such as ACH. There is a need to implement an automatic batch process to dramatically reduce time and cost on this process.

Treasury identified a web-based electronic file delivery (EFD) platform tool to be the right solution – this was Bank of America Merrill Lynch’s CashPro. The solution allows for upload of CSV files to the system by a click of a button. “This means the SSC team can load one or more batches into the system instead of doing manual entries. Approvals can also

review and approve payments by batches at the click of a button,” Kong explains. “Once files are submitted, they are received by the bank then processed and cleared within three days. As long as the payroll files are delivered two days in advance of pay day to the bank, all payments are processed in a timely fashion.” The selection and implementation of an EFD web-based service has helped to automate and standardise the international payroll process across countries; even where each country has its own requirements.

The web-based platform allows the SSC and management team to upload and approve payment batches from anywhere in the world. There is no waiting time wasted in the process. The system also brings benefits such as improved efficiency, reduced cost, a reduction in payment processing time and also manual data entry risk. The total time spent on inputting payments is also reduced from four days to just one for four people. Additional time is saved in payment verification and submission to the bank by management – approximately 60 hours a year. “The ROI achieved is above 1,000% and time savings are in excess of 1,000 working hours,” explains Kong.

Moreover, there is no need to maintain wire templates in the system, reducing the time in creating, approving and cleaning-up of the templates – approximately 40 hours a year. “The total cost saving is approximately $6,000 a month as ACH clearing costs a fraction of wire payments,” says Kong.

“Brocade treasury initiated the EFD implementation with Bank of America Merrill Lynch in mid-2011 and our SSC team in Singapore kicked off testing in the second half of 2011. In November 2011, 17 entities in EMEA and APJ regions passed the testing for EFD and went live with the process seamlessly. The team will do more testing for five more entities in Asia and Latin America and these are expected to go live by end of Q2 2012,” says Kong.


The Allstate Corporation is America’s largest publicly held personal lines insurer, serving approximately 16 million households through its Allstate, Encompass, Esurance and Answer Financial brand names. Widely known by its slogan “You’re In Good Hands With Allstate®,” Allstate offers insurance products (auto, home, life and retirement) and services through Allstate agencies, independent agencies, and Allstate exclusive financial representatives, as well as via www.allstate.com and 1-800 Allstate®.

WinnerBest Card Solution

Allstate Insurance Co.

Mark Madeyski Marketing Manager

Gonzalo Erroz, Allstate Insurance Co and David Aldred, Citi

accepting on behalf of Mark Madeyski

In order to overcome the complexity Allstate’s treasury team faced in managing the company’s, decentralised process for funding marketing efforts across its large network of agency owners, a declining balance card program was established. Working with Citi Commercial Cards, Allstate developed the Executive Advantage card programme as a means to incent and reward its 10,000 plus agency owners. This is a unique solution in the marketplace today, with two patents pending.

The Citi declining balance cards, which are issued to agency owners, have allowed Allstate to move away from a manual audit and paper check reimbursement process, allowing the company to achieve critical savings, improved agency engagement and more effective budget utilisation. The card programme has also enabled the treasury to centralise the management of suppliers, which in turn supports marketing tactics that maintain compliance, protect consumer privacy, are technically integrated and adhere to Allstate branding standards.

At the same time, the programme establishes benchmarks for performance that non-participating suppliers can use to develop a higher value proposition in order to attain participating status on Allstate’s web portal. According to Mark Madeyski, Marketing Manager, Allstate Insurance Co, “The company’s treasury is now better able to leverage its enterprise scale, enabling supplier price negotiations which resulted in cost savings of 10-15% in 2011, with similar performance improvements projected this year.”

“Overall, the Executive Advantage programme has delivered working capital gains by increasing the spend of our travel and expense commercial card programme, enabling the company to earn additional rebates from the bank,” explains Madeyski.

The programme also improves Days Payable Outstanding (DPO) by paying suppliers for goods and services immediately while paying the bank 30-days after cycle. The Citi declining balance card solution provides a real-time data feed offering visibility into KPI and key spend trends, which allows the treasury to improve its overall decision making process.

The card programme has been equally beneficial to Allstate’s agency owners. Agency owners now have a consistent methodology for measuring year-over-year goals. The card programme also saves agencies time and money by utilising pre-negotiated terms with approved suppliers.

Says Madeyski: “Prior to the implementation of the Executive Advantage programme, Allstate faced a significant challenge from its decentralised marketing processes. With different systems in place, managing the recognition process for agency owners and controlling budgets was difficult at best. A lack of visibility into spend left the company with minimal leverage when it came to negotiating the best terms with its suppliers.”

“Now, near real-time upload of funds to the cards are made when distributing cash. This solution provides a consistent process for the 10,000 plus agency owners to receive and utilise funds. And instead of having 14 different regional marketing teams negotiating with more than 150 suppliers, the treasury has eliminated this wasteful and inefficient practice, consolidating suppliers down to an approved list of 45 businesses that have demonstrated clear value for the company and its agency owners.”

Moreover, the financial gains made possible by this card programme have allowed the treasury to pool capital that is then reinvested, delivering further incentives to the field and an improved customer experience.


Highly CommendedBest Card Solution

Toyota Financial ServicesJiming Chen

National Manager of Customer Analytics

Eleanor Hill and Jiming Chen

As part of a major effort to build customer loyalty, Toyota Financial Savings Bank (TFSB) launched the Lexus Pursuits Visa Card in 2005 and the Toyota Rewards Visa Card in 2008. This latest project builds on that successful implementation. The solution was supported by Axiom’s ‘matching logic’ software to create personal identification keys that enable measurement of loyalty at the customer level. The Analytics Group, led by Jiming Chen, could then deliver new analyses to management that point to enterprise-wide impact.

“After launching the card, we coordinated and consolidated Toyota customer information, allowing measurement and analysis of repeat customer transactions at Toyota Motor Sales (TMS), TFS, and at the dealerships.” This brings clarity to the beneficiaries, and in turn allows for data-driven decisions on the strategic direction of the credit card business, and to leverage the cards to target loyalty initiatives for deeper and wider enterprise impact. For example, shortly after the Toyota card was launched, the global financial crisis struck. Many card issuers have since exited from the credit card business given the unfavourable macroeconomic environment. TFS was also evaluating which strategic direction to take. Had the credit cards materially enhanced customer loyalty to the brand as anticipated? Which members of the Toyota family were seeing most benefit? What other card initiatives could be taken to further increase loyalty and drive success?

Data security, privacy, and data integrity issues between the organisations were among the hurdles to overcome before any fundamental business strategy questions could be answered. Challenges included: internal data was housed by different business units at different locations with various formats and indexes; data was at the contract level, not an individual level; therefore, individual loyalty was previously never measured,

analysed, or tracked; data was not consolidated or aggregated to address the credit card loyalty question.

Despite these issues, TFS recognised that analytics and data-driven decision making was critical to its success. And to provide the right information for executives to make the right decisions, TFS needed to integrate data from multiple sources, aggregate at the individual level, define loyalty, measure the loyalty, and analyse the business impact brought on by credit cards. With Axiom’s support, business intelligence built a customer data mart with a personal identification key that enabled measurement of the loyalty at the personal, customer level. Business intelligence also improved the data integrity to ensure the quality of analytics. “We then conducted further data integration, sampling, and statistical analysis to look for the answer. In the end, the collaborative efforts paid off and robust analyses were delivered,” says Chen. “A strong conclusion can be drawn that Toyota/Lexus credit card customers are twice as likely to purchase another Toyota vehicle or finance with Toyota Financial Services within a three year period. They also visit the Toyota dealerships more frequently during that time period, for example for vehicle servicing or to purchase parts and accessories.”

In addition, during the financial crisis, credit card customers were more likely to remain loyal and support the Toyota brand, while other customers’ behaviour followed the macroeconomic trend of reducing their purchases. “Furthermore, the results of this collaborative process have facilitated shared understanding and alignment between all parties – Toyota Motor Sales, Toyota Financial Services, Toyota Financial Savings Bank, and Toyota dealers. We can now directly evaluate the impact of any targeted loyalty initiatives to the broader Toyota ecosystem,” says Chen.

Toyota Financial Services (TFS) is the finance and insurance brand for Toyota in the US, offering retail auto financing and leasing through Toyota Motor Credit Corporation (TMCC). TFS currently employs over 3,300 associates throughout the US, and has managed assets totaling nearly $89 billion.


Faurecia is the world’s sixth-largest automotive equipment supplier with four key business groups: automotive seating, emissions control technologies, interior systems and automotive exteriors. In 2011, the group posted total sales of €16.2 billion. At 31st December 2011, Faurecia employed 84,000 people in 33 countries at 270 sites and 40 R&D centres. Faurecia is listed on the NYSE Euronext Paris stock exchange.

in partnership with

WinnerBest Financing

Solution

FaureciaBaudouin Courau

Group Treasurer

Rajiv Mareachealee, Crédit Agricole and Baudouin Courau

Faurecia was in a challenging situation. The company had to reimburse a shareholder loan, and refinance its main credit facility, could not ask for more funding from its banks, but at the same time needed to bring more banks on board. Faurecia also needed to diversify its funding sources and remove the support burden from its main shareholder – all in the midst of a major financial crisis, and dwindling credit capacity from banks.

In less than six months, Faurecia completely changed the profile of the company’s funding structure – from a bank-and-shareholder debt profile, to a market funding enterprise where bank lines became a backup rather than the main funding source.

To achieve this diversification and address new categories of investors, Faurecia issued two high-yield bonds. The first was a €350m five-year issue in November 2011, followed in February 2012 by a €140m tap issue – at this point, the company felt it was important to build the group’s ‘credit identity’ and become a recognised issuer of debt. The second was a €250m seven-year unguaranteed issue in April 2012. Speaking about the decision to pursue high-yield issuance, Baudouin Courau, Group Treasurer at Faurecia, outlines four major reasons why that route was taken. These are:

• No additional capacity from the bank loan market was required.

• Allows maturities beyond five years.• Allows bank lines to be kept for local funding, CP

programme backup, derivatives.• The syndicated facility becomes a backup line.

Nevertheless, there were a few drawbacks, which included:

• At least one rating is mandatory.• Yield and issuance costs.

• Documentation which is not primarily designed for industrial companies.

• Multiple constraints due to covenants and restrictions.

“The ratings process takes time because the rating agency needs to understand the business and meet the management. The ratings agency will carefully watch how the company delivers what it has budgeted, planned, and communicated to the market. It requires significant top management involvement. The company must understand rating agencies’ models and restatements,” adds Courau.

But thanks to very thorough preparation, the bond issuances were well received by the market, as demonstrated by the additional tap issue. Cleary Gottlieb Steen Hamilton LLP acted as counsel to Faurecia for the issuance of the high-yield bond issuance and Faurecia’s ratings advisor was Crédit Agricole CIB.

At the same time as the company issued its high-yield bonds, Faurecia also refinanced its syndicated loan facility. Salans acted as counsel for this. And in a bid to further diversify its funding sources, Faurecia also undertook a €58m German private placement market.

Summarising his team’s achievements, Courau says: “Not only did we simultaneously refinance our credit line and manage to extend our bank syndicate despite a difficult banking market, we also issued two bonds with quite different structures, grabbing opportunities in a somewhat volatile bond market. In addition, we had to ensure a perfect consistency between three different debt documentations, satisfying banks’ and investors’ requirements (in particular in terms of covenants), without impairing the group’s ability to develop its business and implement its long-term strategy. It was a tough challenge, but we succeeded.”


Highly Commended

Best Financing Solution

SanofiLaurence Valentin

Corporate Treasurer

Charles-Edouard Castaigne and Laurence Valentin, Sanofi, Alex Baudon, J.P. Morgan

This was Sanofi’s debut deal in the dollar SEC-registered market and embedded the largest bond transaction done in 2011 globally. It has enabled Sanofi to raise a significant amount of finance at record low interest rates. The magnitude of this cheap financing has been a key factor in the positive evolution of the company’s share price, with a mechanical lowering of Sanofi’s weighted average cost of capital.

“Financing the external growth was one of Sanofi’s key challenges when it was launching a hostile bid for Genzyme,” explains Laurence Valentin, Corporate Treasurer at Sanofi. The French pharmaceutical company offered Genzyme shareholders $74 cash per share, valuing the US biotech firm at $19.6 billion (plus contingent value rights).

The $20 billion Sanofi raised in the dollar bond market exceeded what might have been raised via its revolving credit facility (RCF) – which totalled €12 billion at the time – without jeopardising the liquidity. Hence, it was necessary to raise extra financing, purely dedicated to the transaction – $15 billion bridge financing – as pre-financing.

Later, during the re-financing stage, it was necessary to access three markets to balance the sourcing of funds: $7 billion from the US bond market, $7 billion from the US CP market and finally bank financing drawn from the aforementioned bridge financing. “To prepare the US investor community for a possible large size bond issuance in the context of a debt financed acquisition, we filed a shelf-registration with the SEC in March 2010 – well before the Genzyme deal was mooted, Valentin explains.

Thanks to the involvement of its various teams – capital markets, front office together with middle and back offices, liquidity management, subsidiary financing – acting under a very structured project management approach, Sanofi’s

treasury department has demonstrated the qualities and skills that are necessary to ensure the success of a major cross-border acquisition deal while making sure the day-to-day business keeps ticking over. “By securing our financing before the announcement of this major M&A transaction, we ensured that day-to-day business would remain unaffected by the Genzyme deal,” Valentin adds.

By closely coordinating the bond issuance with a jumbo US CP ramp-up, Sanofi benefited from both a maximisation of the amount issued and an optimisation of the cost of its debt. Sanofi also issued contingent value rights to bridge the valuation gap between sellers and purchasers regarding one particular product of the target’s portfolio. Finally Sanofi, while proposing a scrip dividend to its shareholders shortly after the transaction, managed to limit its 2011 peak funding.

Despite the magnitude of the transaction, the deal’s impact on Sanofi’s rating remained very limited, with a one notch downgrade by Moody’s (from A1 to A2) while Standard and Poor’s reaffirmed the AA- rating. Short term ratings of (A1+/P1) remained unchanged, allowing for the massive recourse to the US commercial paper (CP) market. In the extremely volatile market environment following the Fukushima nuclear accident, Sanofi made the choice to set in advance the reference rate of roughly 40% of the nominal amount of its fixed rate bonds so that it could avoid becoming fully dependent on the conditions dictated on the day of issuance.

“Thanks to active preparation with the bank used for the settlement of the transaction – which involved teams in Paris and New York – we ensured the corresponding jumbo payments could be processed seamlessly at the time of closing,” Valentin says. “Also, given the extreme sensitivity of the deal – ie its size and the hostile bid over a listed company in the US – we were very pleased with the results.”

Sanofi, a global and diversified healthcare leader, discovers, develops and distributes therapeutic solutions focused on patients’ needs. With seven growth platforms: diabetes solutions, human vaccines, innovative drugs, consumer healthcare, emerging markets, animal health and the new Genzyme, Sanofi reported revenues of over €33 billion in 2011. Sanofi is listed in Paris (EURONEXT: SAN) and in New York (NYSE: SNY).



Congratulations

To the team at Sanofi for your award in the field of Best Financing Solution.



jpmorgan.com/ts


Virgin Media is the first provider of all four broadband, TV, mobile phone and home phone services in the UK. The company’s cable network – the result of a multi-billion pound private investment – delivers next generation entertainment and communications services to over half of all households in the country. Virgin Media is a previous winner in the Best Corporate Debt Solution category in 2010.

Highly Commended

Best Financing Solution

Virgin MediaRick Martin

Group Director Treasury and Investor Relations

Eleanor Hill and Rick Martin, Virgin Media.

The continuing optimisation of Virgin Media’s debt complex has already delivered reductions in the company’s annual interest expense of more than £60m. This contributes in a meaningful way to Virgin Media’s 20% growth in annual free cash flow and also helps in freeing up cash for investment in the business and returns of capital to shareholders. More broadly, these actions fit within a longer-term capital structure strategy that the company has adopted. This has meant that the company has been able to reduce its weighted average cost of debt from 7.7% to 6.3% and extend its weighted average maturity from just over four years to more than six years.

Virgin has also achieved the only investment grade rating on European cable paper, reduced margins on its senior bank loan to provide an all-in cost of funds of circa 2.5% and issued ten-year secured bonds with a coupon of 5.25%. Moreover, in Q1 this year, the company issued ten-year unsecured bonds at the same 5.25% coupon. This last transaction in particular set multiple records when issued for a sub-investment grade offering.

“Our debt structure is the envy of the crossover credit arena and we believe no other company of similar leverage has achieved as much across the Awards period. Such actions drive the optimisation of the company’s debt structure, and address publicly-stated long-term goals for our capital structure generally. Our successes include: steady progress toward circa three times net leverage by mid-2013, reducing the cost and extending the tenor of our debt complex; ability to continue prudent investment in the business, thus preserving and expanding our competitive advantages; providing attractive returns of capital to equity holders,” explains Rick Martin, Group Director Treasury and Investor Relations at Virgin Media.

In terms of optimising its leverage, as of year-end 2011 the company’s net debt to trailing 12 months EBITDA was 3.5 times, and the treasury remains committed to achievement of the circa three times target. “We were upgraded by all three rating agencies in February 2011 and placed on positive outlook by S&P in February of this year. Additionally, our senior bank loan includes a £450m revolver component, representing clear manifestation of the strong relationships we enjoy with our lenders,” says Martin.

The unsecured 5.25% bonds due 2022 represented at issue the second-lowest yielding M&T deal that had ever been done and the second-lowest yielding BB-rated deal ever. The company has also retired a $550m tranche of its 9.125% debt in the past year – with cash from the balance sheet. The recent issuance of 5.25% ten-year unsecured debt funded the partial retirement of outstanding 9.5% debt. Finally, prudent hedging has shielded the company from what would otherwise have been an increase of more than £60m in net debt. Last year saw the company invest more than £750m in fixed asset additions. The company was also able to return £700m of capital to shareholders through its dividend and repurchase programme. This represents the most expensive part of the company’s capital structure, and further reduces Virgin Media’s overall weighted average cost of capital, which benefits all of the company’s stakeholders.

This success has been achieved jointly with the company’s relationship banks. “We enjoy wonderful relationships with our banks and advisors, which have provided both balance sheet, and expertise in executing debt capital markets transactions. In alphabetical order, they are Bank of America Merrill Lynch, BNP Paribas, Crédit Agricole, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan, Lloyds, RBS, and UBS. We have also benefited greatly from the advice provided by Tim Peterson at the law firm Milbank Tweed.”


Hewlett-Packard is a $127 billion technology company that operates in more than 170 countries around the world. HP explores how technology and services can help people and companies address their problems and challenges, and realise their possibilities, aspirations and dreams.

Winner Best Risk

Management Solution

Hewlett-Packard Zac Nesper

Director of Foreign Exchange

Jonathon Traer-Clark and Aleksandra Siwinska from Hewlett-Packard accepting on behalf of

Zac Nesper

Hewlett-Packard (HP) has one of the largest foreign exchange exposures (outstanding contracts of about $35 billion as of October 2011) in the corporate sector. The size of this exposure can be a large portion of the average daily trading volume in some emerging markets. An appropriate execution strategy is therefore extremely important to ensure that HP maximises the value of its hedges. The company wished to develop a trading strategy to optimise trade execution, thus obtaining the best price and in some instances maintaining anonymity in the market.

At the outset, HP entered a prime brokerage relationship to gain access to broader and deeper liquidity. Prime brokerage also provided anonymity and the ability to trade smaller sizes using algorithmic trading. The approach allowed HP to ‘be the bid’ and let market liquidity come to the company itself rather than crossing the spread. This became particularly important when HP announced an $11 billion cross-border acquisition it needed to acquire currency to pay for.

Zac Nesper, Director of Foreign Exchange, HP, explains: “We set the algorithmic engine to accumulate several million GBP per minute first by being the bid, and then crossing the spread, if needed, to get these small amounts done. We also utilised limit orders of bigger size, so if someone else crossed the spread, we would absorb the liquidity without directly moving the market. This approach to execution allowed us to achieve better pricing without making the market aware that we were buying in size.”

This strategy was used to purchase billions of GBP in a short period of time without any market awareness that HP was ‘on the bid’. It has also been used to ensure HP minimises the price impact on other large trades it needs to make. HP’s project team then developed a currency specific trading methodology for emerging markets. Contracts were moved to more liquid value dates (eg BM&F futures in Brazil) which

meant that the positions were less risky for the banks taking the other side of the exchange, allowing HP to secure pricing at lower spreads.

“We also developed a ‘pre-roll’ averaging methodology to split our exposure and trade in smaller amounts over a two week time period in order to take better advantage of market liquidity, opportunistically rolling contracts at lower forward points cost,” says Nesper. HP then started to trade non-deliverable forwards (NDFs) live during local market hours to take advantage of deeper liquidity across different tenors. This ensures that the company locates and takes advantage of bank axes and foreign exchange (FX) positioning to improve prices for HP.

By using the prime brokerage based tool, HP was able to purchase GBP to fund the $11 billion purchase of Autonomy without the market being aware. The company has also used this same strategy for other large trades. HP saved millions per quarter by adopting a pre-rolling strategy (prior to the company netting day) and trading emerging markets exposure competitively during local market hours – and in amounts that market liquidity could better absorb.

“Our risk management solution also unwound one of the largest merger and acquisition (M&A) option trades ever in a manner that provided price tension without letting banks know the size, direction, or timing of the trade in advance,” Nesper explains.

HP has developed a market leading framework on how FX hedges are executed and has been a market leader in adopting cutting edge technology and practice to improve its trade execution. This has already resulted in explicit savings of tens of millions with much of this having the potential to be recurring savings. In addition, the trading methodology has resulted in smoother price action in the market as there is less ‘big flow’ hitting the market at relatively illiquid times. It has also enabled HP to execute an enormous M&A flow anonymously.


Highly Commended

Best Risk Management

Solution

Ford Motor CompanyDennis Tosh

Director, Global Trading and Automotive Risk Management

Peter Seward, Reval and Mark Turner, Ford accepting on behalf of Dennis Tosh

As a global automobile manufacturer, Ford has significant risk exposures. The wide remit of its Global Trading and Risk Management department covers several key trading activities, including cash investment, hedging, commercial paper pricing and sales, as well as FX, commodities and credit risk management.

Given the capital intensive, cyclical nature of the business, cash flow is one of the most important metrics Ford uses in judging its performance. The treasury department, under Ford’s Director of Global Trading and Automotive Risk Management, Dennis Tosh, follows the principle of being able to accurately measure and understand its exposures before any action is taken. Tosh felt it would be useful to know, for example, if the company’s steel exposure provides an offset for or is offset by something else.

“Ford didn’t have the ability to evaluate how those exposures interacted with each other. From time to time, the company would request advice from its bank and dealer partners on this, but without the in-house capabilities and arithmetic knowledge for accurate analysis, it is a relatively dangerous tool to operate,” says Tosh. Ford came to the conclusion that the best solution was to develop a CFaR capability. “This would allow us to think about how these exposures play off of each other in correlations, to better understand what the net exposure is and to be more strategic in looking at managing risk.”

For CFaR, the treasury team did not want to go out and get yet another system and face the issue of building interfaces. Its goal was to move towards an integrated system because of the efficiencies this would provide in terms of support and maintenance, and the focus it would give back to the team on building the product. Ford’s treasury decided to use Reval to build off of the already solid investment it had in the provider.

“The aim was to achieve an integrated system that could help move the risk management discipline forward from simply compliance to analysis,” Tosh remarks.

With a good handle on knowing what its exposures were and how they were created, Ford could think about how the exposures played off of each other in correlations and the treasury team could now do the analysis themselves. With Reval’s CFaR capabilities in-house, Ford could now see through to the arithmetic behind the analysis, and control its own fate. “Until this point, we could not measure how important some exposures were over others,” admits Tosh.

Ford has now succeeded in reaching a solution that does not just look at how exposures net, but also works with other departments to develop an understanding what kind of exposures are more important than others to stakeholders. Also, by better understanding the risks inherent in its global commodity and FX exposures on a standalone and portfolio basis, Ford has been able to improve its hedging decisions.

Using Reval’s solution, the company has established a robust infrastructure and process for hedge accounting and compliance, minimising time and resources spent on keeping up with evolving regulations and enabling a more strategic focus on hedging strategies. “This has also prompted a total review of the company’s hedging strategy. We are moving towards a more strategic and selective hedging policy,” says Tosh.

Ford uses CFaR instead of other methodologies, like value at risk (VAR), because it wants to hedge the economic exposure to the company. Having a way to view, analyse and execute exposures using advanced capabilities, such as an integrated CFaR module, as part of its risk management discipline, Ford is now moving decision-making further upstream, ahead of major product or sourcing decisions.

Ford Motor Company is a global automotive industry leader who manufactures and distributes automobiles across six continents. With about 166,000 employees and about 70 plants worldwide, the company’s automotive brands include Ford and Lincoln.


Inchcape is a leading, independent international automotive distributor and retailer operating in 26 markets. Inchcape has diversified multi-channel revenue streams including sale of new and used vehicles, parts, service, finance and insurance. Inchcape’s vision is to be the world’s most customer-centric automotive retail group and represents some of the world’s leading automotive brands, including Audi, BMW, Jaguar, Land Rover, Lexus, Mercedes-Benz, Porsche, Rolls-Royce, Subaru, Toyota and Volkswagen.

Highly Commended

Best Risk Management

Solution

InchcapeJames Clephane

Treasury Dealing Manager

Prior to the 2008 financial crisis, like many corporate treasuries, Inchcape’s treasury department placed a great deal of emphasis on credit ratings agencies. The company relied on the AAA assessments and the agencies gave funds as a method of determining the safety of its short-term investment portfolios.

“We decided that an internal expertise in fund exposure due diligence would be a more intelligent way to efficiently manage credit and liquidity risk,” says James Clephane, Treasury Dealing Manager at Inchcape. “We also felt that the company’s liquidity investments weren’t sufficiently diversified.” In short, the fund investments were largely relationship banking-based and the company knew a more proactive, more varied approach was required.

Moreover, the company was conscious that its 26 market segments had vastly differing credit conditions that needed to be taken into account more. For example, Inchcape is the distributor for Toyota and Lexus in Greece. “Inchcape needed to be able to more decisively monitor the financial status of these segments, while achieving our investment guidelines and remaining compliant,” Clephane explains. Better audit records and an improved archival process for treasury investments were desired.

This was easier said than done though as gathering and normalising all the data from across the globe was overwhelming, particularly with a small treasury team of only four people. As such, Inchcape chose Institutional Cash Distributors (ICD) to bring simplicity and visibility to its trading and risk management records. As a starting point, ICD provided Inchcape with a money market fund (MMF) trading portal. On top of this, ICD gave support in the form of best practice methodologies, which in many ways drove Inchcape’s treasury to become more sophisticated, leveraging core practices as well as contemporary technologies and techniques.

The company is now able to effectively and efficiently manage credit and liquidity risk with an end-to-end investment process, thanks to ICD’s Transparency Plus® exposure analytics application and a DACOA (diversify, analyse, comply, optimise, and archive methodology) approach to MMF trading. Embracing diversification in its short-term investment portfolio and aiming to mitigate credit and liquidity risk, Inchcape now invests in multiple MMFs. In addition, the treasury sets a maximum investment in a fund’s total assets under management, a maximum investment in any single fund holding issuer, a maximum investment in any country outside its domicile and only invests in rated funds.

Inchcape also analyses various fund metrics to create a balanced investment portfolio that matches the investment objectives and risk tolerance. Furthermore, Inchcape ensures compliance within the limits of the company’s investment guidelines, as determined by its Board of Directors, with regard to maximum investment limits and fund ratings criteria.

Says Clephane: “Once the portfolio is properly diversified, positions are analysed and compliance is achieved, we generate a variety of potential scenarios in order to maximise return. A real benefit of using ICD Transparency Plus® is that the scenarios are generated in real-time.”

“Leveraging an advanced MMF trading portal with deeply integrated fund exposure analytics has been transformational for the company’s treasury department,” says Clephane. “We have been able to quickly implement ICD’s DACOA best practices process, and with an exposure analytics engine built into the trading portal, this has enabled us to effectively and efficiently manage our credit and liquidity risk.” Applying ICD’s technologies and techniques has also generated significant process efficiencies, productivity gains, yield enhancement, risk mitigation, best practices and departmental cost savings for Inchcape.


Winner Best MME-SME

Treasury Solution

Mattioli WoodsNathan Imlach

Finance Director

Mark Slaviero, Mattioli Woods and Suzanne Burgoyne, Lloyds Bank accepting on behalf of

Nathan Imlach

This winning solution was developed to meet the specific requirements of Mattioli Woods and demonstrates an innovative approach to a contemporary problem – namely, the low interest rate returns corporates are able to earn on their short-term cash.

As a pension consultancy and wealth management services provider, Mattioli Woods is bound by client money regulations, which has a knock on effect on the number of bank accounts the company has. In fact, the company holds over £65m in more than 3,000 bank accounts, both for Mattioli Woods itself and its customers. The company splits its interest income on these accounts accordingly.

But with interest rates continuing to be at historic lows, it is difficult to offer customers a good rate of return on their investments, thereby making it harder to compete for new business. The company was therefore looking for a solution which would increase the interest income on the cash in its customers’ accounts.

Mattioli Woods turned to Lloyds Bank, one of its long-term banking partners for help and negotiated an innovative tailored arrangement. Under the new structure, the company’s accounts were re-classified as retail-like funds, which attract a higher rate of interest than corporate accounts. “In order to do this, Lloyds Bank first had to secure approval from its retail pricing committee, which was granted in due course,” explains Nathan Imlach, Finance Director, Mattioli Woods.

As a result of this reclassification, Mattioli Woods now benefits from a higher rate of return, some of which is passed on to the company’s customers. “This makes the rates offered by Mattioli Woods more attractive than rates offered by many of our competitors,” says Imlach.

He continues: “The new structure has also resulted in a lower administrative burden for Mattioli Woods – and because processes have been streamlined, cost savings have also been made for customers.” The decision to re-classify the funds was an innovative approach to an issue which many corporations are currently facing and was made possible by Lloyds Bank’s interpretation of ILAS (Individual Liquidity Adequacy Standards).

The approach that the bank suggested was tailored to the company’s specific business practices, but would not have been suitable for all pension providers. Unlike many other pension providers, the client accounts held by Mattioli Woods are classified as ‘own name accounts’, where the member is co-trustee and is required to approve transactions made on the accounts. This was a key factor in determining the best solution for the company.

“The solution has proved so successful that Mattioli Woods decided to move funds held with other banks to Lloyds,” adds Imlach. There may also be opportunities to improve the benefits of the solution in the future: once the overall balance of the accounts reaches £100m, an even higher interest rate may be applicable.

in partnership with

Mattioli Woods is one of the UK’s leading providers of pension consultancy and wealth management services, advising over 4,000 clients throughout the UK and with assets under advice and administration in excess of £3.02 billion.


WinnerBest Process

Re-engineering Solution

PfizerSusan Webb

Managing DirectorPfizer Dublin Treasury Centre

Fiona O’Leary, Raj Ramapatna and Susan Webb

Pfizer’s winning project took a series of long-standing and highly manual processes associated with its very substantial global inter-company processes and created in its place an automated, re-engineered, end-to-end workflow that thoroughly overhauls and modernises the process.

Internal skills and expertise have been utilised to develop a product that is intuitive, automated and delivers significant benefits for multiple groups across the group,” explains Susan Webb, Managing Director, Pfizer Dublin Treasury Centre. Here’s how it works. Pfizer, via its global treasury centre in Dublin, Ireland extends loans and accepts deposits from its affiliates around the world. This programme runs into the tens of billions of dollars with hundreds of affiliates, in an environment that is constantly changing. Each loan or deposit arrangement is governed by a loan or deposit facility agreement, which has to be preapproved by various groups. In addition, the agreements have to be drafted, signed by the different parties, stored safely and monitored against inter-company loans and deposits.

Webb explains: “As things stood, the process was extremely manual, taking a long time to complete at each stage due to the multiple parties and distances involved. The objective was to create a fully automated end-to-end solution using a central web-based system developed in Microsoft ASP.net, SQL Server, and digital signatures – to significantly reduce the time and the risk of incomplete documentation and unauthorised inter-company loans and deposits.”

Upon initiation, details of the new loan or deposit request are entered into the system. Once this is done, the following steps are automated:

1. Requests for approval are sent to the relevant approvers in different departments across Pfizer. Approvals are

tracked with automated follow up if there is no response. Once approved, the loan documentation is automatically generated based on the initiation details and sent to authorised signatories for approval.

2. Digital signatures are utilised with an option to use a wet signature, depending on the jurisdiction. There is a standard naming convention in place to enable automated filing and retrieval of loan documentation.

3. The system automatically pulls loans and deposit data from the TMS and checks that facility agreements are in place. Exceptions are flagged for follow up.

The solution has dramatically reduced average process lead times from 45 days to 14 days and the actual processing time from 105 minutes to 15 minutes. It reduces costs by ensuring that documentation is in place to support tax audits and makes sure no unauthorised transactions are made. Elsewhere, the solution enhances the company’s SOX compliance by ensuring that all loans and deposits are approved and are covered by facility agreements. “This was entirely an in-house driven initiative, utilising Six Sigma methodology and leveraging expertise and skills across multiple groups – including tax and legal. As a result, the project was low cost but high impact,” says Webb. The solution is also portable and could be applied elsewhere in Pfizer.

The project was led by Raj Ramapatna, IT Team Lead with the support of his manager, Fiona O’Leary, Head of IT and In-House Bank Processes, who conceived the initiative. Ramapatna developed the centralised web-based tool that is the core of the application using his own programming expertise and both O’Leary and Ramapatna leveraged other Pfizer contacts within corporate treasury and in the wider corporation to bring the project successfully from start to finish.

Pfizer is the world’s leading biopharmaceutical company operating in 150 countries and employing 100,000 people. Pfizer makes medicines and vaccines that help people and animals when they are sick and that prevent them from getting sick.


Highly Commended

Best Process Re-engineering

Solution

ITV Karen Fagan

Finance Manager

Karen Fagan and Richard Martin, Barclays

ITV plc operates a business service centre which manages multiple bank accounts in approximately ten currencies. There was a great deal of manual processing involved in the day-to-day processing of treasury transactions and the confirmations process was extremely time consuming. International bank statements were sent by the different entities to the treasury department but this could be on a weekly or monthly basis. The company’s cash pool set up was also extremely complex, with a large number of varying balances on each of the accounts across the pool.

The company wanted to consolidate its cash position and sweep excess funds to zero balanced pool headers for each currency. The new cash pooling arrangement would allow the company to consolidate its bank accounts and improve its cash management structure. The company’s treasury team wanted to utilise technology in order to create a more efficient back office operation which was less reliant on manual processes. Their vision involved a more efficient bank account structure, utilisation of an in-house bank to record the zero balance transactions and settlement of inter-company invoices, straight through processing for payments, balance reporting (UK and overseas), bank statements for reconciliations, deal confirmations and accounting.

In addition ITV was looking to use internal data more effectively. Replacement of the treasury management system (TMS) was central to achieving these goals. The project was led by Bottomline Technologies with Barclays acting as the lead bank. With the help of its partners, ITV introduced a physically pooled operational banking structure with zero balancing alongside an in-house bank. To achieve this, ITV required a more integrated and secure method of sending payments, receiving confirmations from counterparties, accounting and to receiving statements from its banking partners. Barclays

recommended SWIFT for Corporates connectivity and sponsored ITV so that it could become a SWIFT member.

SWIFT has delivered a number of ongoing benefits, including lower levels of operational risk and better daily cash and liquidity management thanks to the greater visibility ITV has over cash balances across all bank accounts. It is also providing the foundation for a number of planned additional treasury improvement initiatives that will yield significant future benefits for the company. “One of the major obstacles was to complete the SWIFT application process. However, ITV was able to draw upon Bottomline’s SWIFT expertise. This accelerated the application process, which ran very smoothly. Likewise, the change to zero balancing from a notional pool was completed with the assistance of Barclays Bank,” says Karen Fagan, Finance Manager, ITV.

As a result of this re-engineering project, the company has implemented a future proof environment using SWIFT connectivity that delivers the flexibility and scalability to increase the volumes processed without a significant impact on the back office treasury department. Benefits delivered include: more frequent and accurate reconciliations; increased straight through processing and reduction in outstanding items; improved data accuracy; and an almost complete elimination of un-reconciled items. It also provides the foundation for a number of upcoming treasury initiatives which will further improve efficiency, cost reduction and revenue growth opportunities for ITV.

“Internal backing and support from ITV management was critically important. Complete commitment to the project was also demonstrated by the secondment of two full-time ITV employees to the treasury initiative with additional resources used to backfill the vacated roles. This level of management support enabled the project team to remain fully focused on the SWIFT and treasury initiatives,” says Fagan.

ITV is the largest commercial television network in the UK. It is the home of popular television from the biggest entertainment events, to original drama, major sport, landmark factual series and independent news. It operates a family of channels including ITV1, ITV2, ITV3, ITV4 and CITV which are broadcast free-to-air on analogue, Freeview, digital satellite and cable.


Highly Commended

Best Process Re-engineering

Solution

Lindner FinanzPeter Schädelbauer

General Manager/Head of Group Treasury

Sven Matzelsberger, Joana von Krüger and Peter Schädelbauer

The Lindner Group operates globally with more than 40 companies. Due to the steady growth of the group and its international expansion, the finance department had to evolve quickly and efficiently. Until 2006, there was a banking department that focused on clearing. In 2008, the first treasury management system was introduced group-wide.

The formation of Lindner Finanz GmbH as an independent in-house bank at the end of 2009 crowned these developments. In addition to complex legal and fiscal problems that needed to be addressed, a short-term TMS upgrade – to Bellin’s tm5 – was necessary, a trading platform had to be implemented, and a cash pool had to be converted.But setting up the in-house bank, which provides financial and related services exclusively for the parent company, subsidiaries and sister companies within the Lindner Group, was just the start. The medium-term implementation of an independent and self-sustaining bank for the group was in itself a whole new project and has produced numerous efficiencies.

“It was important for Lindner Finanz to become a distinct group company with its own management, which would be authorised to make independent decisions. The interests of the in-house bank do not necessarily have to mirror the interests of the group as a whole,” explains Peter Schädelbauer, General Manager/Head of Group Treasury. “Lindner Finanz examines deals like an external bank, using conditions offered by external banks as a comparison. The group bank concept was taken seriously and the in-house bank has the right to refuse deals or funding.”

In fact, decisions are made independently and individually, with the counterparty risk assessed both internally (group companies) and externally (banks/capital market).

Moreover, Lindner Finanz keeps track of the funding structure and takes measures or makes suggestions to

ensure that the Lindner Group maintains its good rating and remains investment grade. In addition to funding related responsibilities, Lindner Finanz functions as the company’s netting centre. All internal settlements are handled by the in-house bank, which minimises the amount of internal cash flows, which in turn has led to reduced payment transaction costs.

An interest and cash pool, also run by Lindner Finanz, allows the group to optimise its liquidity management, to reduce refinancing costs and/or to optimise the interest result. A cost-benefit analysis is created for every deal and considered in the calculation of the margin. The Lindner Finanz works without cost allocation, only with margins. “All group companies are requested to invest in the group bank. However, since the bank offers attractive conditions, the obligation to contract is no longer necessary. All cash lines and trading limits are with Lindner Finanz. The main objectives are to guarantee liquidity at all times and simultaneously minimise the risk of loss,” says Schädelbauer.

Risk management and working capital management have greatly improved since the implementation of the in-house bank. Security and the control of liquidity have also been optimised. Further steps have already been planned, such as the extension of the in-house bank to become a clearing centre and to take over the payment function.

“We have proved that it is possible to construct a truly functional treasury and an in-house bank as an independent company within a short time frame, jointly with Bellin. The banking department has become a modern treasury, and the treasury is now a modern bank. The bank is ready for a DIN ISO 9001 certification, which is in preparation and will be achieved in 2013 at the latest,” concludes Schädelbauer.

The Lindner Group is Europe’s leading company for interior fit-out, façade construction and industrial insulation. With more than 45 years of experience in development and implementation of individual, high-quality project solutions, Lindner manages its production plants and subsidiaries in more than 20 countries.


WinnerTreasury Today in

China

Henkel Fabian Boklage Regional Treasurer

Asia Pacific

After years of having a debt laden operation in China, Henkel has been generating strong cash flows in the country since 2009 and has found itself with surplus cash to invest. “Faced with unpredictable regulatory conditions and a rapidly changing economic environment, Henkel needed to overcome the challenge of managing its cash surplus more effectively,” says Fabian Boklage, Regional Treasurer, Asia Pacific. “The company’s cash management strategy, which is underpinned by an RMB pooling solution, centred on two core concerns,” he explains.

Firstly, in order to sustain its double digit growth, the company required a sufficient level of liquidity so as to be able to fund its daily operations and new investments. Secondly, soaring economic growth in China has led to high inflation, meaning that overnight bank deposits register negative real yields. “Regulation is a big issue for us, as deposit rates are far below inflation levels,” adds Boklage.

Moreover, “Henkel has a centralised treasury organisation with a global policy. Financial investments in China need to be aligned with our headquarters. The market for higher yielding short-term deposits (structured deposits) does not meet our expectations in terms of transparency”. As such, Henkel was finding it difficult to know where to place its surplus renminbi (RMB) cash in the short term to achieve yield whilst not compromising on security or liquidity.

“We knew that we must be able to achieve better returns than we were on our deposits and we started to look for smarter RMB-denominated investments,” comments Boklage. “We wanted to take advantage of the RMB appreciation and the relatively high yields, in comparison to euro and US dollar yields, but naturally we also have a risk tolerance.”

In overcoming this short-term investment challenge – and with the additional objective of wanting to diversify the company’s counterparty risks – Henkel turned to J.P. Morgan Asset Management and its onshore AAA rated RMB money market fund (MMF), which was the first of its kind to be established in China.

The fund is managed by China Investment Fund Management (CIFM), a joint venture between J.P. Morgan Asset Management and Shanghai International Trust and Investment Co Ltd., with direct oversight by J.P. Morgan Asset Management. The CIFM RMB MMF, as it is known, was launched in early 2005 and Henkel has been investing in the fund since June 2011.

Not only did the fund offer an excellent track record, with its top notch rating, Henkel was also pleased with the transparency that this provided. Furthermore, J.P. Morgan Asset Management was able to offer Henkel T+1 liquidity through the fund, matching a core need of Henkel’s dynamic business environment in China. Another advantage of such an investment is that, while interest earned on bank deposits in China are subject to tax, roughly 25%, dividends from money market fund investments are exempt from such duties.

Boklage believes that the combination of the liquidity benefits and the safety and transparency of the CIFM RMB MMF make it an ideal tool for treasurers looking to invest surplus cash onshore in China, whilst achieving a decent return. In addition, the fund has the ability to handle large liquidity flows equivalent to $2 billion. “My personal opinion is that J.P. Morgan Asset Management is offering a very useful, value-added product here. Without it, investing in China is extremely challenging and time consuming,” he says.

Henkel operates worldwide with leading brands and technologies in three business areas: laundry and home care, cosmetics/toiletries and adhesive technologies. Founded in 1876, Henkel holds globally leading market positions both in the consumer and industrial businesses with well-known brands such as Persil, Schwarzkopf and Loctite.



Congratulations

To the team at Henkel for your award in the field of Treasury Today in China.

Your commitment to best practice and innovation is admirable and J.P. Morgan Asset Management is honoured to be associated with your award winning solution.


jpmgloballiquidity.com


Highly CommendedTreasury Today in

China

Sany GroupDai Shuai

Finance Manager

Andrew P. Reid from Deutsche Bank accepting on behalf of Sany Group with Eleanor Hill

Sany Group is currently ranked among the top 500 companies in the world with a presence in more than 150 countries. Since its humble beginnings in 1989, the company has grown into a global construction machinery corporation with five industrial parks in China, four research and development (R&D) and manufacturing bases in America, Germany, India and Brazil, and 21 sales companies around the world. Currently, Sany employs about 70,000 people across the 150 regions in which it has operations.

The fast pace of growth of the company from inception, to the impressive global scale to date, rendered it essential to have centralised and automated treasury and cash management processes to facilitate management control, optimise process efficiency and reduce the possibility of human error by removing manual processing to the fullest extent possible. These objectives were achieved by working closely with Deutsche Bank.

“Deutsche Bank has been Sany’s major banking partner in Europe (Germany, UK, France, Italy, and Belgium) for many years and has provided the European subsidiaries with professional advice, high quality service and innovative solutions to the relevant corporate treasury and finance department when required,” says Dai Shuai, Finance Manager.

The company not only implemented the bank’s unified electronic banking platform, but was also able to leverage its extensive global network and commitment to excellence and service quality.

“With the support of Deutsche Bank’s implementation team, we were able to implement and benefit from a fully automated solution, provided by the bank, for cash management related business. The solution embodies a straight through processing (STP) model for payments and collections to improve the company’s daily operational efficiency,” explains Shuai.

Moreover, via Deutsche Bank’s electronic banking platform, db-direct internet, Sany is now able to efficiently carry out its high volume of payment processes in Europe, from preparation to approval, in a seamless and secure manner. Furthermore, db-direct internet provides the company with centralised visibility over all accounts, as well as centralised access to all the company’s accounts across the globe.

“We were very impressed by the bank’s sales and implementation teams,” says Shuai. “But in addition, we would also like to emphasise that Deutsche Bank’s customer service officers are quick in responding to queries in daily operations, and that their global query tracking mechanism (Q-Track), an integrated real-time global workflow management tool, is a value-added service that, in our view, makes the bank stand out from others.”

Given the success of this joint project, the relationship between Sany and Deutsche Bank has deepened significantly over the past few years. “We look forward to enhancing our co-operation and strengthening our relationship with Deutsche Bank going forward,” adds Shuai.

Sany Group is a global company in the construction machinery industry with a vast product range of concrete machinery, excavator and crawler cranes. Sany employs about 60,000 people in more than 150 countries.


WinnerOne to Watch

RSA InsuranceWilliam McDonnell

Group Financial Controller

Max Pell, Xchanging, Daniel Ferguson from RSA Insurance accepting on behalf of William

McDonnell, Paul Duffy, Deutsche Bank

Inefficient operations and processes have left RSA, like many market participants, dealing with the challenges of excessive liquidity, counterparty default risk, and complex reconciliation and settlement processes. With the ability to write premiums in around 140 countries, the company has also experienced limitations in the management of currency variations. “The Sorrento initiative is aimed at addressing the systemic issues that arise from these ineffective processes and delivering market-level improvements in operational efficiency, transparency, control and capital efficiency,” explains William McDonnell, RSA’s Group Financial Controller.

Project Sorrento is the proposed solution to the problems of accounting and settlement in the international open insurance market, put forward by Xchanging and Deutsche Bank. This will provide RSA with scalable netting and settlement services for both premium and claim transactions using virtual banking technology-based cash management software, owned and operated by Xchanging.

The service will allow the development and implementation of an ACORD (Association for Cooperative Operations Research and Development) messaging hub for delivering low cost technical accounting messaging. This will include a data transformation engine that enables RSA to use its structured data to participate in the solution without the requirements for complex, lengthy and expensive back office system change or integration initiatives. A central reference ledger will also be developed that uses the exchange of structured data to create a shared, harmonised counterparty position for all insurance transactions.

The service will delivered as a SAAS ‘utility’, supported by a transactional pricing model that allows participants to exchange fixed cost in people and knowledge for flexible cost

in the automated management of accounting and settlement. ACORD driven operational processes will be integrated with SWIFTNet driven cash management to provide a straight through reconciliation solution.

Within this project, Deutsche Bank will facilitate the settlement service for all or selected transactions around the world, in multiple currencies and across all time zones. “This service will work on a netted basis, thereby reducing settlement charges and the cash flow demands on the group,” adds McDonnell. The company will also have a real-time control and visibility on their days sales outstanding (DSO), days payables outstanding (DPO) and on the cash balance within the platform due to MT942 SWIFT reporting. The platform can operate on a multibank, open basis, actively pulling the funds from ‘donor’ accounts held with third-party banks.

“The solution aims to significantly reduce costs and the duration of accounting and settlement by up to 50% through automation. It also promises to improve cash flow through market level netting of premiums and claims (1:5 ratio for the value of cash moved per cycle to the value of accounts settled is expected)” says McDonnell. Single net payments and receivables per settlement currency across all counterparty balances will result in substantially reduced volumes of cash movements with reduced costs of contingent liquidity arising from netted liabilities. Notably, the Sorrento project provides substantial support for Pillar II and Pillar III of Solvency II through these improvements in accuracy, control and reporting on payables and receivables. Deployment begins with a pilot implementation in Europe during 2012.

With a 300-year heritage, RSA is one of the world’s leading multinational insurance groups. Today, RSA employs around 23,000 people, serving 17m customers in around 140 countries.


Highly Commended

One to Watch

GoogleJoe Stanfill

Analyst

Every quarter, Google’s accounting team had been downloading excel-based gain/loss reports from State Street custody accounting, filtering and selecting items for more detailed review. Liaising with the treasury risk and portfolio teams, the company’s accounting department then followed up with external managers and their own research to manually identify credit events. This process relied on a relatively arbitrary review threshold and the ability of the various treasury teams to appropriately identify credit-related events. It also depended on accounting and risk professionals to successfully evaluate the impact of those events on observed declines in fair value. These dependencies were costly, not only in terms of time and effort, but also with regard to risk or error and lack of visibility.

In Q1 2012, Google implemented an issuer level credit modelling framework, custom developed by doctorate researchers at Moody’s Credit Research, to enhance the precision, quality, and efficiency of its effort-intensive asset impairments process. “The model consumes Google investment accounting data from our custodial agent, State Street Trust Company, on a monthly and quarterly basis. Data is transmitted directly via and from Secure File Transfer Protocol (SFTP). Once a month, this data is uploaded and integrated with the ‘Moody’s Credit Universe’ data suite within Moody’s’ proprietary CreditEdge+ analytics application,” says Joe Stanfill, Analyst at Google.

A newly merged, credit data enriched file is then processed through the framework for all holdings within Google’s emerging market, investment grade, and high yield funds groups. Together, these funds represent around 9,000 holdings and $6 billion assets under management (AUM) as of April 2012. The resulting output files are delivered by Moody’s one day after they receive each accounting data ‘input’ file and provide a comprehensive view of all potential impairment candidates in eligible portfolios. Three distinct measurements (or credit ‘perspectives’) included in these files each reflect different assumptions about the cause, severity and

probability of persistence of known credit events which have impacted each issuer during any given period.

“Data retrieval, research, identification, and evaluation efforts are now built into the underlying data, modelling, and framework solution itself, eliminating the need for arbitrary thresholds and subjective judgements of causation and impact,” Stanfill explains. All declines in fair value in eligible portfolios are systematically reviewed, instead of by limited sampling. The model’s credit metrics identify, with much greater precision, which holdings’ losses are more likely due to credit events and provide guidance as to their possible persistence and severity.

The re-engineered asset impairments process is fully automated, excluding the generation of impairment accounting entries, and saves Google treasury up to 9 -12 man hours per quarter end (potentially more in volatile markets). According to Stanfill, “It also provides enhanced visibility with regular reporting and the additional option to run ad-hoc reports on request, thereby reducing intra-quarter risk of unobserved credit impacts to portfolio value.” Furthermore, the solution allows comprehensive coverage of all holdings in Google’s non-agency-backed portfolio groups. Google’s accounting team, once able only to review perhaps 200-300 securities, with loss exceeding a certain threshold at quarter end, is now able to review on average 2000-3000 securities – in two thirds of the time.

To Google’s knowledge, this solution is the first of its kind in the corporate treasury space. Benchmarking against six corporate treasuries in the technology industry with equivalent cash management profiles, Google determined that all were (also) utilising highly-manual, subjective review processes driven by Microsoft Excel and professional judgment. This new framework integrates high-quality credit data with sophisticated, yet transparent, modelling methodology and technology to not only automate the process, but significantly enhance overall precision.

Founded in 1996 as a research project, it is now estimated that Google runs over one million servers in data centres around the world and is recognised as the world’s leading search engine. Headquartered in the US, Google has more than 20,000 employees and a reported turnover of €23.6 billion in 2009.


Highly Commended

One to Watch

MerckJörg BermüllerHead of Cash and Risk Management

Jörg Bermüller and Thomas Eberle, Deutsche Bank

Each of Merck’s subsidiaries is responsible for their own guarantee for business transactions embarked upon in their particular locality. Issued by financial institutions, bank guarantees are needed for tender participations, required by customs and tax authorities, and are a prerequisite for any operational business. However, there was no harmonised framework set up for Merck’s 250 subsidiaries; therefore, there was no data on the multiple guarantee portfolios available at group level. Each guarantee was obeying its own local terms and conditions which naturally led to high complexity, no transparency and unnecessary costs across the board. “We wanted to centralise a group-wide bank guarantee scheme,” says Jörg Bermüller, Head of Cash and Risk Management at Merck. The company used this as an opportunity to establish a standardised global process which would also allow potential for improvement.

In the initial stages of the project, ten international banks received a very detailed request for proposal (RFP) which already provided a clear outline of what the solution should look like and what was important for Merck. It outlined the centralised booking of all global guarantees and optimum transparency, combined with a highly streamlined process.

During the beauty contest, the remaining three banks received more than 150 questions that all needed to be answered in detail. Once satisfied, Merck chose to work with Deutsche Bank on this global scheme and the bank subsequently delivered their web-based electronic global platform for guarantees to the company.

Says Bermüller: “We have achieved our aim of one worldwide bank guarantee facility over €150m valid for all of our 250 subsidiaries, and one global guarantee issuance process for all types of guarantees and jurisdictions.” Moreover, one interface

with the in-house bank cash management system is available for automated fee payment, and for automated reconciliation.

Merck’s paper-based guarantee process has now been replaced with an electronic straight through processing workflow. Time per guarantee request had been reduced from one hour to just 12 minutes, while time for guarantee issuance has been reduced from 14 days to a mere 24 hours. All guarantees are now in one single database system enabling full transparency and reduced complexity.

This simplicity factor is re-enforced by the fact that the number of banking relationships has also been reduced from 103 to one, and document requirements have been reduced from 575 to five on an annual basis (ie balance sheet, P&L, signature card, passport copies, and commercial register). These process improvements have led to significant cost savings for the company. “The number of man days needed for guarantee handling has been reduced from 250 to 25 annually, and bank fees have been reduced by 50% on an annual basis also,” says Bermüller.

With a very small project team of only two, this implementation was completed on top of daily business requirements and no external consultants or any other external resources were employed. There was no ready-to-use solution available, and the company’s banking partner, Deutsche Bank, had to develop and programme a bespoke solution for Merck’s needs. With no comparable projects available for orientation, Merck was the market forerunner in the implementation of a global trade solution among multinational corporate clients.

Bermüller concludes: “During the company’s global guarantee project, our team displayed a great level of motivation, dedication and attention to detail, which were cornerstones of this extremely successful venture.”

Merck KGaA in Darmstadt is the oldest pharmaceutical and chemical company in the world. It conducts the operations in four divisions: Merck Serono, Consumer Health Care, Merck Millipore and Performance Materials. With 40,000 employees in 67 countries, Merck KGaA generated annual total revenues of €10.5 billion in 2011.


WinnerBest in Class

Benchmarking

SAP AGAndreas Hartmann

Global Treasury –Head of Front Office

SAP was awarded the ‘Best in Class Benchmarking’ accolade for overall working capital management. This winning project, led by the company’s global treasury, was set up to improve the way the company used its working capital. The scope of the project was not limited to improving financial data, but was to include other areas, such as remuneration schemes. One of the most important aspects of the project was to increase transparency over the company’s processes. This was done by measuring changes using scalable Key Performance Indicators (KPIs).

To ensure that the company’s most important KPIs were covered, it was decided that the company would develop the following seven KPIs, each of which covered the individual regions in which the company works and the SAP group as a whole:

1. Working Capital Intensity: a KPI expressed in percentage terms with the goal to measure the capital needed to finance the operational business.

2. Days Sales Outstanding (DSO): To reflect its business model properly, the company decided to use a rolling 12 months DSO as well a three month DSO.

3. Days Purchases Outstanding (DPO): In DSO and DPO, the company distinguishes between the overall ‘number of days’ and the best possible DSO/DPO which is oriented on the pre-agreed payment terms, so it can calculate the potential improvement for DSO/DPO.

4. Revenue recognition due to accounts receivables overdue: This is a euro-denominated KPI showing the amount of revenue which SAP was not able to recognise

due to significant overdue amounts from customers that new business was entered into with.

5. Billing accuracy: a KPI highlighting process accuracy of billing processes. It is shown in per cent as well as in euros.

6. Customer financing: a KPI showing the amount of revenue being financed via the SAP financing programme together with external financing partners. As a third-party financing partner remits the funds rather quickly, such third-party financing has a positive impact on DSO reduction. SAP ensures the necessary transparency and enables related senior management decisions via an Xcelsius driven dashboard.

7. A ‘Probability of Default’: KPI indicating a potential default of SAP’s customers between invoicing and effective payment of outstanding invoices.

As a result of implementing these KPIs, the company was able to improve its working capital efficiency. For example, the reduction of its days sales outstanding (DSO), which is the most important part of working capital at SAP, by just one day, improved the company’s cash flow by a substantial seven figure amount.

“It was not easy to define the KPIs and benchmarks. Even if the KPIs you want are widely used and have a clear definition, that does not necessarily make them an ideal fit for your operation. For example, where there is strong seasonality in a business cycle, averaging of DSO may be necessary to provide sustainable data to senior management. As a consequence we had to structure the KPIs in a way that they provide a sound basis to measure and support the related business,” explains Andreas Hartmann, SAP’s Head of Front Office within Global Treasury.

As market leader in enterprise application software, SAP helps companies of all sizes and industries run better. The company‘s applications and services enable customers to operate profitably, adapt continuously and grow sustainably. Nearly two-thirds of the world’s transaction revenue touches a SAP system. The company‘s customers include more than three-quarters of the Global Fortune 500.


Highly Commended

Best in Class Benchmarking

Bharti Airtel LtdManish Kapoor

Head of Cash and Bank

Manish Kapoor and Alok Bafna from Bharti Airtel and Barbara Harrison, Citi

The telecoms industry is one of the newest and fastest growing markets in India but with business conditions that are constantly changing, benchmarking processes are a vital step towards increasing operational efficiency. Bharti Airtel sought to achieve its benchmarking goals by means of establishing a Shared Service Centre (SSC).

“Historically, Bharti Airtel operated a de-centralised payment model, where over 57 Strategic Business Unit (SBU) bank accounts were used, based on one assigned staff member per SBU. As a result, Cash & Bank (C&B) operations were slow, due to the high administrative burden and large volumes of physical document flows in both local currency and cross-border payments,” says Manish Kapoor, Head of Airtel Centre of Excellence (ACE) Cash and Bank at Bharti Airtel.

Physical modes of payment, such as cheques and demand drafts, were intrinsic in the company’s payment methodology, creating an undue resource burden. “Additionally, the extensive bandwidth expended by the user department, along with C&B, to handle queries relating to remittance detail unique transaction record numbers and other payment related matters needed to be addressed,” says Kapoor. “In view of this, Bharti Airtel committed to building a best-in-class SSC for its key operations. Teaming with Citi and HDFC Bank, the journey to build the Airtel Centre of Excellence – Cash and Bank (ACE C&B) SSC began.”

This was a first for the Indian telecoms industry, and as could be expected for such a proposition, the start of ACE C&B faced an array of challenges. For example, the company needed to realign the end-to-end composition of its key activities across a wide scale of 57 SBUs covering national and international operations, a monthly transaction base of 90,000 and a payout of $1 billion. A proficient solution was designed to enable ACE C&B to deliver the key priorities, given

stakeholders’ expectations and the competitive market. This required a highly controlled and risk free payment processing environment; trade partner satisfaction with proactive payment information broadcast; cost reductions by accurately meeting forecasting levels and reducing administrative activities.

According to Kapoor, “A highly motivated team was established to handle the pressures with ease, whilst adhering to all internal and external compliance requirements. At the initial stage, banking partners were re-evaluated based on multiple parameters including their solution, regional capabilities and dynamism. Citi and HDFC Bank were chosen as partners after extensive deliberations.

The major activities selected for realignment were vendor satisfaction, forecasting efficiency, payment methodology, payment information system, controlled environment, efficiencies of scale and master data management (MDM) clean-up. Through the solution, Bharti Airtel successfully created a strong SSC model ACE and was able to achieve centralisation of all SBUs in an extremely aggressive timeline of less than one and a half years. Benefits so far include 97% accuracy in fund forecasting releasing the working capital of $30m; substantial reduction of interest cost from INR 6.6m to INR 0.3 million per month; reduction of customer queries by 88% – queries reduced from 225 per day to 28 per day; electronic fund transfer rejections were halved from 1.75% to 0.91%; integrated utility software has lowered the clerical error rate to zero levels; cutting edge technology for end-to-end image based, 100% paperless environment with host-to-host payment methodology. Says Kapoor: “Now that all Bharti Airtel ACE C&B operations are consolidated and stabilised under the umbrella of ACE C&B, they are ready to take on the additional challenges of developing C&B operations for its recent acquisition - Zain Telecom (worth $10.7 billion).”

Bharti Airtel is a leading integrated telecommunications company with operations in 20 countries across Asia and Africa touching the lives of 252 million people. Headquartered in New Delhi, India, the company ranks amongst the top five mobile service providers globally in terms of subscribers with annual turnover of $13.2 billion.


Photo Gallery – Adam Smith Awards for Best Practice and Innovation 2012

REWARDING TALENT.

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Lloyds Bank, Lloyds TSB Corporate Markets and Lloyds TSB are trading names of Lloyds TSB Bank plc and Lloyds TSB Scotland plc. Lloyds Bank and Lloyds TSB Corporate Markets are trading names of Bank of Scotland plc. Lloyds TSB Bank plc. Registered Office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no. 2065. Lloyds TSB Scotland plc. Registered Office: Henry Duncan House, 120 George Street, Edinburgh EH2 4LH. Registered in Scotland no. 95237. Bank of Scotland plc. Registered Office: The Mound, Edinburgh EH1 1YZ. Registered in Scotland no. 327000. Authorised and regulated by the Financial Services Authority under registration numbers 119278, 191240 and 169628 respectively.

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Lloyds Bank Wholesale Banking & Markets would like to extend its congratulations to the winners of the Treasury Today Adam Smith Awards 2012.

You have raised the bar for best practice and innovation, and we’re delighted to celebrate your success.

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Adam Smith Awards - Treasury Today

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