GTB 5.2 Summer 2012 by Jeff & Jones Media

SU M ME R 2 0 1 2 Vo l.5 No.2

Global Treasury Briefing P e r s p e c t i v e s g u i d i n g g lo b a l t r e a s u ry a n d f i n a n c e Subscribe to Global Treasury Briefing online at www.gtbriefing.com

THIS ISSUE Amsterdam: Host to the 2012 gtnews Forum gtnews Awards â&#x20AC;&#x201C; See the Winners Awards Case Studies from Toyota FS and Dassault European Treasurers Council

Published every quarter by gtnews.com

Deutsche Bank FEATURE | C hallenges Global Transaction Bankingto Onl i ne Pay ment U pta k e

You need flow Business demands flow. Goods, services, capital. Ideas, information, confidence. Limit the circulation of any of these and your business will miss opportunities. Running a global operation, trading across borders, venturing into the unknown – we can help you navigate this complex environment. We are already helping many of the world’s leading international companies enhance their performance. Talk to us and let your business flow.

This advertisement has been approved and/or communicated by Deutsche Bank AG. Without limitation this advertisement does not constitute an offer or a recommendation to enter into any transaction neither does it constitute the offer of securities. The offer of any services and/or securities in any jurisdiction by Deutsche Bank AG or by its subsidiaries and/or affiliates will be made in accordance with appropriate local legislation and regulation. Deutsche Bank AG is authorized under German Banking Law (competent authority: BaFin – Federal Financial Supervisory Authority) and authorized and subject to limited regulation by the Financial Services Authority. Details about the extent of Deutsche Bank AG’s authorization and regulation by the Financial Services Authority are available on request. Deutsche Bank Securities Inc., a subsidiary of Deutsche Bank AG, conducts investment banking and securities activities in the United States. Deutsche Bank Securities Inc. is a member of NYSE, FINRA and SIPC and its broker-dealer affiliates. Lending and other commercial banking activities in the United States are performed Deutsche Bank AGBRIEFING and its banking 2 | byGLOBAL TREASURY | Vol 5affiliates. No.2 Investments are subject to investment risk, including market fluctuations, regulatory change, counterparty risk, possible delays in repayment and loss of income and principal invested. The value of investments can fall as well as rise and you might not get back the amount originally invested at any point in time. © Copyright Deutsche Bank 2012.

CONTENTS

Contents 4.................. The Forum for Global Corporate Treasury

A report from the two-day gtnews Forum for Global Corporate Treasury, sponsored by Bank of America Merrill Lynch (BofA Merrill), which opened on 24 May in Amsterdam, the Netherlands, with an in-depth topical eurozone presentation to the audience of senior treasurers from the European Central Bank, followed by sessions on SEPA, FX, risk, RMB and much more.

27................ Awards Case Study from Toyota Financial Services

Editor-in-chief: Neil Ainger neila@gtnews.com

Editor: Joy Macknight joym@gtnews.com Deputy Editor: Graham Buck grahamb@gtnews.com Head of Production and Client Services: Mia Leaning mial@gtnews.com

Sales Director: Anne-Marie Rice annemarie@gtnews.com Design and Artwork: Miss Jones Design donna@missjonesdesign.com

Editorial Board

Toyota Financial Services took action to manage sovereign risk in Brazil and support its intercompany lending activities. This case study is based upon the firm’s winning entry into the gtnews Awards 2012, risk management category, and details how the division found a special form of insurance known as political risk insurance (PRI) to be the most successful choice to suit its needs.

31................ Awards Case Study from Dassault Systèmes

+44 20 7436 4306 enquiries@gtbriefing.com

14................ The Awards for Global Corporate Treasury

At a gala dinner at Amsterdam's prestigious Sofitel Grand Hotel, on the evening of 24 May, the winners of the third gtnews Awards for Global Corporate Treasury, sponsored by BofA Merrill, were announced. See all the winners and learn about best practice here. The Awards recognise the treasurers and teams who have done the most to contribute to the success of their organisation, wherever they are in the world.

Global Treasury Briefing

Dassault Systèmes' treasury centralised its European payments processing hub at its French HQ and won a highly commended certificate at the gtnews Awards 2012 in the shared service/payment factories category for their efforts. The project is explained here in the form of a case study to help other treasuries understand the necessary technology and procedural changes involved in moving to a payment factory.

35................ Cash Management is Key, Says ETC The European Treasurers Council (ETC), held in London, on 30 April at the Dorchester Hotel, discussed the central position of cash management in a treasurer’s daily routine, and how forecasting, pooling and technology can aid efficiency and indeed reporting, for liquidity purposes. With the gloomy economic picture and eurozone crisis, effective cash management has rarely been more important.

Asia-Pacific ................................................ Craig Busch, Group Treasurer , WorleyParsons............ Sue Lee, Assistant Treasurer, Danfoss A/S................... Jason Wang, Regional Treasurer Asia-Pacfic, Henkel.. Latin America .......................................... Carlos Negrao, Manager Corporate Treasury and Contract Management, BT Global Services.................. Middle East .............................................. Daniele Vecchi, Senior Vice President, Head of Group Treasury, Majid Al Futtaim Group................................ North America.......................................... Michael W Connolly, Vice President, Treasurer, Tiffany & Co Ruud Roggekamp, Assistant Treasurer Corporate Finance & Banking, The Boeing Company Rey Semonia, Financial Advisor Len Thompson, Cash Manager, Fike Corporation Brad Gilbert, Treasury Manager, Vista Print Global Treasury Briefing is published quarterly by C-Stream Limited, 3rd Floor, Northumberland House, 155–157 Great Portland Street, London W1W 6QP +44 (0)20 7436 4306

GLOBAL TREASURY BRIEFING | Vol 5 No.2 | 3

SHOW REPORT | T he gtnews F o rum f o r G lo bal Co rp o rate T reasury 2012

Headline sponsor

The two-day gtnews Forum for Global Corporate Treasury, sponsored by Bank of America Merrill Lynch (BofA Merrill), opened on 24 May in Amsterdam, the Netherlands, with a topical presentation to the audience of 60 senior corporate treasurers from the European Central Bank (ECB) on what's next for the eurozone. This was followed by discussions on the single euro payments area (SEPA), foreign exchange (FX) volatility, regulations, and crucially risk management, which is increasingly central to the remit of a treasurer and was one of the core themes of the event.

Neil Ainger, editor-in-chief of gtnews and Joy Macknight, the editor of gtnews, wrote immediate blogs covering the gtnews Forum 2012, which can be seen online at www.gtnews.com/ features/639.cfm. This article is a collated version, with additional reporting and pictures.

“Anyone listening to the news at the moment will know that we are living in uncertain times and risk in all its various forms is a paramount concern,” added BofA Merrill’s Berndt, “which is precisely when you need strong relationships and 4 | GLOBAL TREASURY BRIEFING | Vol 5 No.2

timely information. This Forum will help to develop both.” The programme director and chair of the 2012 Forum, Peter Van Rood, corporate director of treasury at AkzoNobel, then took to the lectern to introduce the first speaker of the day, Conception Alonso, principal economist at the European Central Bank (ECB). Before doing so he first set the scene for the conference by declaring that "there is more systemic risk on the horizon than ever before and interdependency – and hence counterparty risk – is growing sharply. Just look at the Chinese and US economic relationship, and particularly Greece and the EU." This introduction prepared the ground nicely for the ECB's Alonso, who went on to give a speech entitled ‘Where Next for the Eurozone?’, referring to the recent travails of the single currency, fears of an imminent Greek exit and of the liquidity and other risks surrounding contagion; issues much discussed during the coffee breaks and breakout sessions throughout the day. The main thrust of Alonso's presentation, however, was to emphasise

The third staging of the gtnews Forum for Global Corporate Treasury got underway with a welcome from Michael Connolly, vice president and treasurer of Tiffany & Co., who thanked everyone for coming to the "not too shabby venue", as he amusingly referred to Amsterdam's five star Amstel Intercontinental Hotel. Connolly, who also the serves as chairman of the board of directors at the Association for Financial Professionals (AFP), went on to thank the sponsors of the event represented by Carole Berndt, head of global transaction services for Europe, Middle East and Africa (EMEA) at Bank of America Merrill Lynch (BofA Merrill), who said she was "proud to be involved with such an event and looking forward to the gtnews Awards for Global Corporate Treasury, which will be handed out tonight." (See page 14 for the awards winners).

SHOW REPORT | T he gtnews F o rum f o r G lo bal Co rp o rate T reasury 2012

Top left: Paul Boodee, director of Americas region finance at ToyotaFS, second right, joins a session on risk at the gtnews Forum 2012. Michael Connolly, vice president and treasurer at Tiffany & Co. listens to Conception of the ECB with other treasurers. Bottom left: Tone Merete Hansen, senior corporate treasury officer at Telenor, on right, listens in to a workshop at the gtnews Forum 2012.

the extra €1.1 trillion of liquidity the ECB has pumped into the financial system since the crash of 2008 and the on-going support it is providing. The status of the financial system in Europe and globally was examined in a series of detailed slides, as Alonso addressed: • What is Liquidity management and how the ECB monitors it, both in normal times and after the eruption of the banking crisis in 2008.

• The response of the ECB to the sovereign debt crisis in terms of providing support to countries such as Greece. • The excess liquidity provided to the banks via the two Long-Term Refinancing Operations (LTROs) it has run, giving finance for three years at 1% in the last LTRO versus a market rate of 0.25% to provide stability to the eurosystem. "The ECB is actually making a lot of money off this but it's not what it wants as it's not our role," said Alonso. "Ultimately, we want the interbank market to be reactivated." And the flow of credit to the normal economy to be resumed, she could have added for the corporate treasury audience. • Target2 balances and the topical issue of liquidity flows in the eurozone. The latter point was particularly topical. As was noted, there is a huge amount of

ECB lending to support central banks in Italy, Spain, Portugal, Ireland and other struggling eurozone economies such as Greece, while others, such as the German Bundesbank, deposit a lot with the institution. Next up at the gtnews Forum 2012 was a series of concurrent workshops that the treasury audience could choose from. The ‘Is Your Company Ready for SEPA?’ session was presented by Etienne Goosse, the secretary general of the European Payments Council (EPC), who continually stressed that "there are just 20 months to go until the first compliance date of 1 February 2014 for euro members ... and eight days!" For non-euro members the compliance date is 31 October 2016, and there was some discussion on whether any of these dates might slip in the wake of the eurozone crisis and possible exits by Greece and others. But Goosse stressed that the single euro payments area (SEPA) regulation introduced this spring made compliance mandatory: if corporate treasurers hadn't already launched a compliance project they should do it immediately. Three compliance case studies and some testimonials were also shared with the audience from Villeroy & Boch, Deutsche Post Pension Service Business Division and Uniqa Group Austria. GLOBAL TREASURY BRIEFING | Vol 5 No.2 | 5

SHOW REPORT | T he gtnews F o rum f o r G lo bal Co rp o rate T reasury 2012

Eurozone countries will not just walk away from the project but will instead do everything to make the union work

The other concurrent morning workshop was entitled ‘Sovereign Credit Ratings in the Eurozone’ and hosted by Frank Gill, senior director of the sovereign ratings group at Standard and Poor's (S&P). After charting the number of European sovereign downgrades announced over the past few months, followed by bank downgrades, he pointed out that without moving more rapidly towards a fiscal union, beyond just a monetary union, it will be impossible to make a clear distinction between sovereign and bank ratings in Europe. S&P’s Gill also described the five main factors that contribute towards an S&P rating: 1. Political: institutional effectiveness and political risks. 2. Economic: economic structure and growth prospects. 3. External: external liquidity and international investment position. 4. Fiscal: fiscal performance and flexibility, as well as debt burden. 5. Monetary: monetary flexibility. Interestingly, Gill argued that S&P was presently “more constructive” than the market, which he suggested is exaggerating the potential risk. According to him, the eurozone countries will not just walk away from the project but will instead do everything to make the union work.

Afternoon sessions: Day One

6 | GLOBAL TREASURY BRIEFING | Vol 5 No.2

AkzoNobel hedges all its transaction exposures, and hedges economic and translation exposures explained van Rood, who described the company's policy to the moderator of the session Roland Rechtsteiner, a partner at the Oliver Wyman consultancy. The main instruments AkzoNobel uses are FX swaps and forwards. Derivatives are never used for speculation; only ever to reduce existing exposures. "We like to keep it simple," said van Rood, which is sage advice for the volatile situation in the world today where complex positions can easily move against you.

Risk Management: What Keeps You Up at Night?

Three corporate treasury practitioners, from SunGard, Indesit and Getty Images, grappled with the wide array of risks that they and their peers face, during the concurrent early afternoon workshop entitled ‘Risk Management: What Keeps You Up at Night?’. Daniela Sibille, director, treasury manager, Europe, Middle East and Africa (EMEA) at SunGard Corporate Treasury, said that in the past five years her view of risk has changed and developed. Liquidity was the main risk that kept her awake at night; SunGard operates in more than 100 countries and her job is to ensure that cash is available when and where it is needed. Sibille highlighted the issue that many corporate treasurers face, particularly those whose companies are quite aggressive in their acquistion policy. “Five years ago it was relatively easy to get banks to fund acquisitions, but that is not the case today,” she said. “Today, we sweep all our funds to London. But as we expanded into new countries, we found that it is not that simple to move cash out of these regions.” Although SunGard does not face supply chain risk due to the nature of its financial services and software business, it does face a double whammy in terms of counterparty risk, as its 10 biggest clients are also its

After a lunch enjoyed on the balcony of the Amstel Intercontinental Hotel in the bright sunshine of Amsterdam, attendees at the gtnews Forum returned to the early afternoon sessions and the key theme of risk. One of the scheduled presentations at 1.30-2.30pm looked at 'Managing FX Volatility' in uncertain economic times. AkzoNobel's Peter van Rood and Mike Connolly from Tiffany & Co. shared the experiences of their two companies, respectively with US$15.7bn in revenue and operations in 84 countries, versus US$3.7bn in revenue and 247 Tiffany stores in 22 different countries. The jeweller also has mining and metal suppliers from around

the world, which must also be considered when managing its currency exposures.

FPO

140 currencies. 190 countries. One complete solution. CashPro® Foreign Exchange Services. With broad payment capabilities and robust hedging tools, CashPro Foreign Exchange Services from Bank of America Merrill Lynch helps you connect with partners worldwide. Using a range of convenient channels, you gain efficiencies with tailored file formats, multi-currency payments from a single account and faster straight-through processing. All delivered with the global fluency you expect from Bank of America Merrill Lynch.

Client commitment. Global solutions. Total connectivity.

“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 affiliates 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 affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., both 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 Affiliates: Are Not FDIC Insured  May Lose Value  Are Not Bank Guaranteed. ©2012 Bank of America Corporation

SHOW REPORT | T he gtnews F o rum f o r G lo bal Co rp o rate T reasury 2012

There is a need to classify and categorise risk, as well as understand the interdependencies

main banking partners. Sibille found it difficult to assess counterparty risk and was not convinced that credit ratings agencies (CRAs) were that useful for this purpose. Keara Killian, director, treasury and risk management and EMEA treasury, Getty Images, faces a very specific type of risk. Getty employs hundreds of photographers across the world, many in war-torn or conflict zones. The company deals with the risks associated with kidnappings or injuries, including deaths, of its photographers through captive insurance companies. Mustafa Kilic, head of regional treasury and group risk and insurance manager at Indesit, which makes home appliances, explained how his team reshaped treasury and redefined risk before the financial crisis in 2008. He asked the company’s executives what risks they were concerned about and got hundreds of answers, which led him to believe that no one in the company was sleeping at night. He explained that there is a need to classify and categorise risk, as well as understand the interdependencies. “Risk management should see ahead, before ‘Black Swans’ are coming,” he explained and asked attendees whether they had been warned of new threats coming down the pipeline by their risk management team. Only a few treasurers said yes. He argued that to identify risk, teams need key risk indicators (KRIs) instead of key performance indicators (KPIs).

8 | GLOBAL TREASURY BRIEFING | Vol 5 No.2

A late afternoon workshop session at 2.45pm entitled 'New Regulations, Compliance and What it All Means for the Treasurer' was chaired by Charles Taylor, chief operating officer at the International Centre for Financial Regulation (ICFR). He reviewed how the raft of impending regulations such as the Basel III and Solvency II capital adequacy rules will impact banks and insurers respectively, ultimately hitting lending and investment potential for corporates. Other regulations Taylor advised the audience to be aware of and prepare for were Dodd-Frank and the supranational Foreign Account Tax Compliance Act (FATCA) in the US, plus the Markets in Financial Instruments Directive (MiFID) II in Europe and the Alternative Investment Fund Management Directive (AIFMD). The latter covers shadow banking and could mean corporate treasuries supplying credit to their suppliers may end up being treated like a bank, with all the associated burden of compliance that implies. A scary prospect indeed as the end of the first day approached and the certainty of tighter credit supply post-crash due to all these new regulations began to sink in for the audience of corporate treasurers. Concurrently, Ken Lillie, head of the Lillie Associates consultancy, was talking about ‘Treasury Technology’ and what solutions corporate treasurers should consider when looking to update their systems. How technology can be leveraged to help a treasury improve its efficiency and effectiveness was the key theme of the presentation, allied to an active discussion about the best procedures to follow, covering the selection phase, implementation phase and how to ensure the expected benefits accrue. The importance of enterprise resource planning (ERP) systems and treasury management systems (TMS) was much discussed, alongside how to make them central to a corporation’s operations. Also covered was the rise of new technologies such as cloud computing,

Kilic explained that KRIs are “triggering items” hidden under the radar that could, for example, have a profound effect on liquidity risk. These risks are interdependent and could have a domino affect much later on, such as a natural disaster like an earthquake, or a competitor taking market share from your company. These risks can be managed and planned for, and he advocated that all companies should look at updating their business continuity plan. When speaking to gtnews before the panel, Kilic explained that a liquidity crunch is really the end of a chain of other unmitigated or unrecognised risks.

Regulation and Technology

SHOW REPORT | T he gtnews F o rum f o r G lo bal Co rp o rate T reasury 2012

trading platforms, electronic invoicing (e-invoicing) and the standardised XML messaging format. The opportunities for increased analysis, oversight and timely reporting in cash flow forecasting and management were also addressed. Financial exposure technology, which lets you monitor and mitigate liquidity and other risks, is especially topical at the moment and was also discussed by the corporate treasurers in the workshop. A particular focus was how such technology can help get a chief financial officer (CFO) on board for a technology upgrade, to obtain board approval and funding for projects.

Closing First Day Plenary: Short-term Cash Investing

The final plenary of the opening day at the gtnews Forum 2012 looked at the issue of liquidity risk again, this time from the angle of short-term investments. Money market funds (MMFs), and in particular government MMFs, were the instruments of choice for Séverine Le Blévennec, director, EMEA treasury, Honeywell, as bank deposits become less available. She also uses tri-party repos and fixed income securities.

All the short-term investment instruments used by Le Blévennec must comply with the investment committee’s policy. To be able to use tri-party repos, she had to build a solid business case and argue for a change in the investment guidelines. Le Blévennec said that she is always looking for the “sweet spot between liquidity risk and return”. Michel Bekkers, group treasurer, adidas, agreed with her, saying that it was a difficult balance to strike, especially since the price of the preservation of capital may mean negative yield. “Yield is

not a driver in this situation,” he said, “only a secondary consideration.” With that the audience of global corporate treasurers departed by a boat for the third staging of the gtnews Awards for Global Corporate Treasury, sponsored by BofA Merrill. The brilliant sunshine and novel transportation method along the canals of Amsterdam, to the very doors of the venue for the Awards at the Sofitel Grand Hotel, delighted the attendees as they joined those who had flown in specially for the event (see page 14 for the Awards winners and write-up).

Second Day of the gtnews Forum 2012 The final day of the gtnews Forum for Global Corporate Treasury, sponsored by BofA Merrill, continued on 25 May with presentations on the status of the European banking system, what SWIFT offers corporates, the internationalisation of the renminbi (RMB), a case study from International Flavors & Fragrances (IFF) on managing crossborder liquidity via a multi-currency notional cash pool, and a world economic overview from the chief economist at Bank of America, Mickey Levy.

Left: Peter van Rood, programme director for the gtnews Forum 2012 and director of corporate treasury at AkzoNobel, on the right, participates in a workshop in Amsterdam. Middle: Jim Kaitz, head of AFP, joined the debate during the coffee breaks at the gtnews Forum 2012 Right: Carole Berndt, head of global transaction services for EMEA at BofA Merrill, and Maha El Dimackki, treasury sales, BofA Merrill, make their way to the annual Awards in the specially laid on canal boat in Amsterdam, the Netherlands.

One of the opening presentations of the second and final day at the Amstel Intercontinental Hotel in Amsterdam, was from the managing director of the IBOS Association, Bob Lyddon. He detailed the large, unsustainable exposures that certain banks and countries have in Europe at the moment. In an informative but downbeat presentation, Lyddon showed how the Long-Term Refinancing Operation (LTRO) carried out by the European Central Bank (ECB) is just postponing the inevitable reckoning that many institutions still have to face following the crash of 2008 and how GLOBAL TREASURY BRIEFING | Vol 5 No.2 | 9

SHOW REPORT f omr eGnlo bal FEATURE | C h a l| lTehe n ggtnews e s to O nF loirum n e Pay t U p taCo k erp o rate T reasury 2012

Always looking for the “sweet spot between liquidity risk and return

treasurers should prepare for even tighter credit supply, which will be exacerbated by regulations such as the Basel III capital adequacy rules. Lyddon also showed how the non-bailout mechanisms that are keeping the European banking system going, such as the European Investment Bank (EIB), the ECB itself via its LTROs and the Target 2 balances system are all “kicking the can down the road”, until the day when assets and liabilities need to be totalled up. "For instance, the European Financial Stability Fund [EFSF] nominally has €750bn against it but can actually only lend €440bn due to an 'over guarantee mechanism' – would you as a treasurer do that?" asked Lyddon. "I doubt it. The ECB itself states it has €2.1 trillion of assets but actually that is the European central banks' money, who own the ECB, not the other way around. The EIB has published capital of €232bn but only €12bn has actually been paid in by EU members." The point being that there is a lot of smoke and mirrors in the European banking system at the moment, from the banks themselves right up to the central banks and governments, warned Lyddon, and treasurers are understandably being wary. As he said: "There are more liabilities than there are assets." The concurrent workshop at 9-10am on Friday 25 May at the gtnews Forum 2012 examined what SWIFT had to offer corporates and also the challenges involved in trying to re-engineer the ‘highway’ to your banks as a treasurer. Rasmus Heskier Schioenning, a partner at the Trintco consultancy, led off the discussion by looking at the three categories of solutions that corporates are typically interested in:

• Treasury: FIN and foreign exchange (FX) confirmation via FIN, centralised treasury confirmation matching for corporate 10 | GLOBAL TREASURY BRIEFING | Vol 5 No.2

• Trade: Letters of credit (L/Cs) and guarantees, alternative instruments for trade settlements or bank payment obligation (BPO), and electronic invoicing (e-invoicing). Not many treasurers in the room had implemented SWIFT to date. Historically thought of as an expensive option and for the likes of mega-corporates with lots of resources, Heskier Schioenning said that the multibank SWIFT proposition is now gaining attention from medium-sized corporates, mainly as a result of SWIFT service bureaus. But there are still challenges to adopting SWIFT, which Heskier Schioenning identified in four stages: 1. Initial investigation and building the business case. 2. Request for proposal (RFP)/quote (RFQ). 3. Implementation. 4. Already live with SWIFT and want to use the investment further for greater functionality. Schioenning’s advice was to address the SWIFT challenges with a “common sense” approach and put in time at the beginning to investigate the business case and plan the rollout so that everyone’s expectations are realistic. “Expect a number of bombs on the road,” he said. One treasurer in the room who had implemented SWIFT in Europe and was in the process of rolling it out in Africa, agreed that his company had a few set-backs along the way. “Do not shortcut the process and jump to start,” said Heskier Schioenning. “One pitfall to avoid is not aligning the SWIFT project with other initiatives and missing clear mandates from management.” He also outlined new SWIFT initiatives, and the potential benefits, which are coming down the pipeline, such as: • SWIFT business intelligence. • Sanctions screening. • MyStandards. •S WIFT reference (managing corporate reference data).

• Payments: These use SWIFT FIN and FileAct and can include additional messaging services (interact), other message types, 3SKey security and browsing tool, which are not typically used by corporates at this time.

treasury and electronic bank account management (eBAM).

SHOW REPORT | T he gtnews F o rum f o r G lo bal Co rp o rate T reasury 2012

Case Study: Managing Cross-border Liquidity In the second set of morning workshops running from 10.15-11.15am on 25 May, Eric Vastenhound, global treasury operations manager at International Flavors & Fragrances (IFF), presented a real-world treasury case study showing how his corporation changed its cash management infrastructure with Bank Mendes Gans’ (BMG) multicurrency notional pool. The company, which operates in 32 countries, collects money from its entities across the globe and its mantra is “cash is a corporate asset”. The key drivers for IFF’s current cash management infrastructure are that the firm is a net borrower and has overdraft positions in every location. It has a strong and stable cash flow, as all its production entities are profitable and generate cash (business-tobusiness [B2B]). To treasury, liquidity equals mobility. At the end of 2009, IFF treasury selected BMG’s multicurrency notional cash pool. To date, the BMG overlay structure includes 36 entities in 22 countries and 114 accounts in 14 currencies. Vastenhound said that the notional pool ‘go live’ process was very smooth and took only a few months after all the legal documentation was gone over with a fine-toothed comb. Most of the time was spent with client on-boarding.

The credit and debit positions of all participants in the pool are offset irrespective of the currency. Vastenhound said that they notionally translate local currencies to the US dollar as the common base currency; therefore there are no FX transactions. Any balance in any company/convertible currency is acceptable as the overall balance (at the ECB rate) of the pool is zero (or within the credit line). This will, therefore, limit the need for intercompany loans to fund local working capital requirements. Subsidiaries withdraw or deposit funds in any currency they need. Vastenhound said that treasury was quite relaxed about cash transfers because of the limit in the use of the cash pool. In this way it is used as an in-house bank (IHB) and money does not leave the company. Vastenhound added that the IFF cash pool needs a credit line attached to it. The net balance (in US dollar equivalent) should be close to zero. He explained that there is a 1% penalty paid by the entity if it borrows from the cash pool and that is paid into the master account. This sparked a debate among the attendees as to how the IHB derives the interest rate and the

requirement to be transparent about the process mainly for the auditor’s benefit. In the remaining months of 2012, IFF treasury plans to: • Further explore intercompany loan opportunities. • Introduce new currencies. • Introduce MT101/103 on domestic accounts with non-core banks.

RMB Libreralisation

The concurrent late morning session on the final day of the gtnews Forum looked at the internationalisation of the renminbi (RMB). John Greenwood, chief economist at Invesco, outlined how the Chinese are slowly opening the door to the liberalisation of RMB and what these moves might mean for global trade and businesses in the future. "I must warn you though that in my opinion it will be years, if not decades, until China fully liberalises the RMB," he said. "Some moves have been made but it's at a glacial pace and financial markets need to be more liberalised first. There is also no way that RMB can challenge the US dollar as the world's reserve currency yet." Hong Kong will naturally entrench its position as a centre for RMB trading and funding, said Greenwood, and the rising gross domestic product (GDP) and trade of China will continue to act as drivers for the rise of the renminbi but the third driver, government policy, is lagging way behind. There are nine conditions needed to establish an international reserve currency said Greenwood in one of his slides, and only five are currently met by China: 1. Unit of account. 2. Medium of exchange. 3. Store of value. 4. Economic size. 5. Creditor status. The "problem areas" are a developed financial system; network effects, which equate to first mover advantage and take a long time to dissipate, meaning the US dollar will be pre-eminent for a long time yet; the lack of availability of RMB outside the domestic economy and full convertibility. The problem of trapped cash in China, therefore, and how to get it out will remain with treasurers for some time to come it seems.

GLOBAL TREASURY BRIEFING | Vol 5 No.2 | 11

SHOW REPORT | T he gtnews F o rum f o r G lo bal Co rp o rate T reasury 2012

We are living in uncertain times and you need to be prepared for it

Final presentation: World Economic View The final plenary of the gtnews Forum for Global Corporate Treasury was given by the sponsor's chief economist at Bank of America, Mickey Levy, who provided a global economic view of the financial trends shaping the world at the moment. He stressed that "the economic environment is the business environment", and warned treasurers that "whatever baseline you are using at the moment, put a very wide band of uncertainty around it, including economic growth figures and predictions from governments. We are living in uncertain times and you need to be prepared for it." His speech nicely reiterated the central theme of risk in all its many forms, from liquidity to sovereign, bank and many new forms of risk, which was one of the key themes of the gtnews Forum 2012. Levy's main points were: • Th e US economy is improving but growth will be slow and the country still has inherent problems with high unemployment, particularly among less educated and semi-skilled workingaged people. Household debt as a percentage of disposable income is still above 100% and more deleveraging means slow consumer spending growth. Corporate profits are high, but high unemployment and weak wage growth are constraining household incomes. This is a source of social unrest. • China's growth is slowing, which will impact global trade, as Europe and the US are China’s largest trading partners. • Europe's problems stem from countries living beyond their means for decades and the adjustments are painful.

12 | GLOBAL TREASURY BRIEFING | Vol 5 No.2

• The current recession in Europe is only aggravating the situation and makes needed reforms to the labour market, competitiveness and so forth harder to achieve. "The government structure in Europe doesn't help either," he added, "as it's designed to muddle through and isn't up to meeting challenges during difficult times." This leads to a credibility gap for policymakers that needs to be resolved. "All these points will impact business and will therefore impact you," stressed Levy, who went on to reiterate that these are the reasons why treasurers need to put a big band of uncertainty around their assumptions and baselines.

Conclusions

After the completion of the final plenary, the programme director for the gtnews Forum 2012, van Rood, thanked everyone for coming to the two-day event, including the Awards on the evening of 24 May (see page 14 for the winners), and for participating fully in the discussions. “I opened the Forum by emphasising its networking, educational and knowledge sharing capabilities, particularly in regard to the topical issue of systemic risk right now and feel that all of these key points [and the centrality of risk] have been addressed here in Amsterdam. Thank you for coming and I hope you have enjoyed meeting your peers and colleagues,” he said. Speaking after the event, Carole Berndt, head of global transaction services for Europe, Middle East and Africa (EMEA), BofA Merrill Lynch, said: “The gtnews Forum for Global Corporate Treasury 2012 was a useful event to attend as it provided a fascinating insight into what is top of mind for the corporate treasurer in today’s uncertain times. There are many immediate risk challenges ahead and longer-term regulatory, trade finance, connectivity

• Greece will be very difficult to save. “The hurdles facing it are large and policymakers rescue efforts could be construed as throwing good money after bad,” Levy said. European policymakers should also stop being so reactive and become more proactive.

• Italy, Portugal and Spain are not the same as Greece, and each country should be treated differently according to its particular challenges and problems.

SHOW REPORT | T he gtnews F o rum f o r G lo bal Co rp o rate T reasury 2012 and economic obstacles to overcome, but the Forum provided a good arena in which to discuss these issues and to highlight the ways in which banks can help clients through the sharing of knowledge, contacts and best practice. I feel sure that the attendees left with both enthusiasm and information that will stand them in good stead for the future.”

Reaction Quotes

"The topics at the Forum were very relevant to what's happening in the treasury world right now and the calibre of the speakers was very high with knowledgeable hosts, treasurers, economists and other participants," said Alan Chitty, treasury controller at SABMiller. "It's a combination that makes for a good conference." Bart Hendriks, group treasurer at Delek Europe, which runs the petrol station and convinience store operation for major oil companies in certain European countries, was impressed with the forum workshop entitled 'Is Your Company Ready for SEPA?', which he called an “eye opener”. “We’ve got 15,000 paperbased B2B mandates that we will need to change. That will be a big SEPA challenge for us.”

Commenting on the same session, Mark Herman, cash manager at Eastman, based in the Netherlands, said: “SEPA is a technology challenge for me as I need to move towards the XML ISO 20022 messaging standard from an old format. Our IT department is just now looking at this,” he added. “This represents the firing gun for our SEPA project.” According to Mustafa Kilic, head of regional treasury and group risk and insurance manager at Indesit, the topical opening plenary of the gtnews Forum, given by Conception Alonso at the ECB, was what interested him most. He is responsible for risk in his corporation, and is understandably convinced that economic and financial risk is what worries most treasurers at the moment. “My only concern was that the speech referenced historical models

at points, which may not be relevant for the next problem and challenges ahead,” he said. “More generally when it comes to eurozone crisis, as opposed to the presentation, I worry that there is no unified fiscal policy across the eurozone and maintaining the single currency without this could prove to be impossible.” Moving on to the second day, Daniela Sibille, director of corporate treasury for Europe, Middle East and Africa (EMEA) at SunGard, said she loved the session on the internationalisation of the RMB. "There was lots of detail and the outlook on the future development of the RMB was particularly interesting, as John Greenwood from Invesco emphasised it will take years for the RMB to become a reserve currency. He is not as bullish as many others you hear on this topic, which is an interesting corrective."

The topics at the Forum were very relevant to what's happening in the treasury world right now and the calibre of the speakers was very high

"It's been a really really good event with lots of informative and positive contributions," commented Tone Merte Hansen, senior corporate treasurer at Telenor, before heading out into the sunshine in Amsterdam to enjoy the bright blue skies and beautiful canals of the Dutch city, prior to heading back to her corporation to ponder on the lessons learnt and the experiences shared at the gtnews Forum. “What I really liked about the Forum was the unique, personal touch that it has,” commented Peter Van Rood, co-chair and corporate director of treasury at AkzoNobel. “It is not too big, so allows for in-depth discussions in an informal, knowledgeable environment. The contentrich programme and ability to talk with fellow treasurers in a relaxed environment is what makes it special. It is precisely this informality and active discussion element that we were aiming to achieve when developing the programme.”

For more information about the gtnews Forum for Global Corporate Treasury, sponsored by Bank of America Merrill Lynch, please visit the website at www.gtnews.com/theforum.

GLOBAL TREASURY BRIEFING | Vol 5 No.2 | 13

WINNERS | gtnews awards f o r G lo bal co rp o rate treasur y 2012 Headline sponsor

At a gala dinner on the evening of 24 May at Amsterdam's prestigious Sofitel Grand Hotel, the winners of the third gtnews Awards for Global Corporate Treasury, sponsored by Bank of America Merrill Lynch (BofA Merrill), were announced. More than 110 attendees gathered from around the world to celebrate best practice and reward industry-leading projects and personalities. The gtnews Awards for Global Corporate Treasury, sponsored by Bank of America Merrill Lynch (BofA Merrill), recognise the treasurers and teams who have done the most to contribute to the success of their organisation, wherever they are in the world. Now in its third year, the Awards have a hard-earned reputation for authority and independence. The judging panel (see page 21) consists of working treasury professionals from AkzoNobel, Etihad, and Thomas Cook, among many other corporates. All are willing to use their realworld expertise to ensure that the very best examples of corporate treasury work are rewarded. A member of the judging panel, Michael Connolly, vice president and treasurer of Tiffany & Co., acted as compere for the evening and anncounced the winners for 2012. Connolly is also the serving chairman of the board of directors at the Association for Financial Professionals (AFP). He said he was impressed by

14 | GLOBAL TREASURY BRIEFING | Vol 5 No.2

the “international-ness” of the entries and that, “the companies participating were from many different countries, with entries spanning many borders”. According to Connolly, it is clear that treasurers face similar global challenges: managing risk across the enterprise; interacting effectively with diverse business units; working closely with technology teams; and fostering good partnerships with banks and others. “As a corporate treasurer myself,” he said, “it has been an honour to see how my colleagues have met these challenges and how they have succeeded in today’s financial environment”. Connolly went on to thank the support of the sponsor, BofA Merrill, whose head of global transaction services (GTS) for Europe, Middle East and Africa (EMEA), Carole Berndt, took to the stage to say the bank was, “delighted to be sponsoring these awards and to see everyone enjoying themselves. “These peer-reviewed awards demonstrate

Neil Ainger is editor-in-chief at gtnews, having joined the title in January 2012. He maintains a keen interest in technology and banking, especially in the payments and mobile fields, having previously been the deputy editor at Banking Technology and editor of FSTech. Ainger has a BA (Hons) in English from Leeds University and has also worked at Reed Elsevier and on internal publications for BT Global, PwC and Lucent Communications (in NYC), having been employed as a journalist since graduating in 1995.

WINNERS | gtnews awards f o r G lo bal co rp o rate treasur y 2012

All articles ÂŠ 2012 C-Stream Limited

1. Mark Tweedie, head of technology, media and telecoms, EMEA, GTS, Citi, accepting on behalf of UPS and Microsoft, which respectively won the Cash Flow Forecasting and Working Capital categories; 2. Doan Nguyen, financing and treasury director, GE Energy Power Conversion and 3. Cara Hanrahan (behind), a treasury services sales executive, EMEA, at project partners, JP Morgan, accepting the best SWIFT Implementation trophy; 4. Willem Dokkum, global head of sales, payments and cash management, ING, category sponsor for the Shared Service / Payment Factory category, which was won by Philips, working with project partners Zanders. The award was collected by 5. Gary Throup, vice president and treasury controller at Philips. 6. Jessica Ewing, treasury consultant, Dell, accepting on behalf of Gary Bischoping Jr, who won the readersâ&#x20AC;&#x2122; choice Corporate Treasurer of the Year award. 7. Paul Boodee, director, Americas region finance, Toyota Financial Services, picked up the Risk Management trophy. 8. Joerg Bermuller, head of cash and risk management at Merck KGaA, which won the Supply Chain /

Trade Finance category and the overall Gold Award for the highest scoring entry across all categories. 9. Vanita Aggarwal, director of treasury risk, Toyota Financial Services, collected the best Treasury Technology award on behalf of Toyota Motor Credit Corporation, with 10. Juddith van Paassen, a partner at the category sponsors, Zanders. 11. Carole Berndt, head of GTS, EMEA, at the overall event sponsors, BofA Merrill accepting the award for Treasury Team of the Year on behalf of QinetiQ. Her colleague, 12. Jennifer Boussuge, head of global treasury sales at BofA Merrill, is on her right. 13. Patrick Coleman, general manager for EMEA at IT2 is on stage with 14. Alan Chitty, treasury controller at SABMiller, winners of the Foreign Exchange (FX) Project of the Year. 15. Michael Connolly, vice president and treasurer of Tiffany & Co., was the compere of the 2012 Awards. Attendees arrive at the Sofitel Grand Hotel in Amsterdam for the gtnews Awards for Global Corporate Treasury 2012, sponsored by BofA Merrill.

GLOBAL TREASURY BRIEFING | Vol 5 No.2 | 15

WINNERS | gtnews awards f o r G lo bal co rp o rate treasur y 2012

Top left: Peter van Rood, the programme director for the preceding gtnews Forum, corporate director of treasury at AkzoNobel and a member of the judging panel, enjoys a canape before the Awards start. Centre: Michael Connolly (on lectern), vice president and treasurer of Tiffany & Co., who acted as compere for the evening, and is the serving chairman of the board of directors at the AFP as well as a judge, reads out the winners of the gtnews Awards 2012 to a rapt audience.

There were 76 entries in total from 57 different treasury departments, spanning 11 different categories in the 2012 Awards for Global Corporate Treasury. The trophies were handed out in the evening following on from the opening of the gtnews Forum for Global Corporate Treasury on 24 May (see page 4), a twoday conference that examined the key topics, trends and challenges currently facing treasurers, with speakers from the European Central Bank (ECB) and European Payments Council (EPC) addressing issues such as the single euro payments area (SEPA) and the eurozone crisis, among much more. The 2012 Awards winners represent a revealing cross-section of all that is best in the world of treasury at this time and show how corporations are coping with the pressures of an increasingly globalised marketplace, economic recession, and debt and departure fears in parts of the eurozone, allied to tight credit conditions and a raft of new regulatory compliance demands.

16 | GLOBAL TREASURY BRIEFING | Vol 5 No.2

The gtnews Awards for Global Corporate Treasury 2012 winners and highly commended entries were as follows:

Cash Flow Forecasting Project of the Year Winner: UPS - Overcoming Data Aggravation

For the United Parcel Service (UPS) treasury team obtaining daily visibility into its bank balances across 1,600 accounts globally was anything but simple. Treasury implemented its global SWIFT bank balance initiative, integrating it into its global cash flow forecasting system, cutting the number of accounts held and achieving significant beneficial results for the company. According to one of the judges during the scoring procedure, when comments and marks were being gathered under the anonymous ‘Chatham House’ rule, this UPS entry achieved, “a pretty outstanding result, decreasing bank accounts by 50%”, and was fully deserving of winning the category. Highly commended:

•C arlsberg - Liquidity Management Project. •M erck - Global Restructuring of Cash Management Processes.

Bottom left: Carole Berndt, head of global transaction services for Europe, Middle East and Africa (EMEA) from the overall sponsor BofA Merrill, speaks to Doan Nguyen, financing and treasury director at GE Energy Power Conversion, during the pre-Awards drinks.

excellence in global corporate treasury and the winners are truly deserving of the accolade,” added Berndt.

WINNERS | gtnews awards f o r G lo bal co rp o rate treasur y 2012

Top right: Enjoying the dinner and conversation at the gtnews Awards 2012. Listening attentively for the winners as the results of the gtnews Awards 2012 are unveiled.

Bottom right: Your carriage awaits …cars line up to take people home after attending the gtnews Awards 2012.

Foreign Exchange (FX) Project of the Year

Risk Management Project of the Year

Winner: SABMiller - Project Griffin, European Treasury Centre Implementation

Winner: Toyota Financial Services - A Sovereign Risk Protected Liquidity Solution

Project Griffin at SAB Miller built a European treasury centre to provide efficiencies and standardisation, and to enhance control and reduce risk and costs. Working with partners at Citi and IT2, Griffin achieved best practice project management results, generating a substantial range of savings and transparent workflow optimisation in FX pricing, cash and exposure forecasting.

Toyota Financial Services effectively delivered a US$300m intercompany liquidity solution to its Brazilian affiliate. Political risk insurance was used to mitigate exposure to sovereign risk, thereby allowing the execution of offshore term loans that have saved the Brazilian operation US$16m in interest expenses.

“It is apparent that a very clear project plan was established [by SABMiller] and that the project team took a very disciplined approach to ensuring the objectives were met,” commented one member of the judging panel when deciding which entry was deserving of being the category award winner.

For a case study overview of this entry please see page 27 (look out for more case studies on www.gtnews.com). “This [Toyota] solution can be applied to others. The issue is not credit, but sovereign country risk,” said one member of the judging panel.

Highly commended: • Cognizant Treasury - FX Hedge Programme.

• Aeroflot - Implementation of SAP in Transportation Industry Treasury.

• Thai Airways - Comprehensive FX and Cash Management Solution.

Highly commended:

• Henkel - Global Bank Account Visibility.

GLOBAL TREASURY BRIEFING | Vol 5 No.2 | 17

WINNERS | gtnews awards f o r G lo bal co rp o rate treasur y 2012

Category sponsor

GE solved the problem of accessing and retaining bank account statement information for 14,000 accounts

Shared Service/Payment Factories Project of the Year Winner: Philips Electronics - Next Generation Philips Payment Factory (NGPPF) The NGPPF provides Philips with greater control over the group bank infrastructure and payment processing. It also enables treasury to advise local affiliates on efficient working capital management, while at the same time improving trade credit management. Finally, it lays the foundation for enhanced cash forecasting. According to one of the judges’ scoring comments under the anonymous ‘Chatham House’ rule, “this winning project successfully centralised all global cash management and payments processing for 25 countries and 15 currencies.” Highly commended: • AB Sciex - Readiness Project. • Dassault Systèmes - Treasury Using XML to Become a Key Support. For a case study of this highly commended entry please see page 31 (look out for more case studies on www.gtnews.com).

Supply Chain/Trade Finance Project of the Year Winner: Merck KGaA - Global Guarantee Management (Letter of Credit)

One member of the judging panel 18 | GLOBAL TREASURY BRIEFING | Vol 5 No.2

Highly commended:

• Foxconn Technology Group - Supply Chain Finance Programme. • Stanley Black & Decker - Supply Chain Finance EMEA Expansion.

SWIFT Implementation Project of the Year Winner: GE - Eco-imagination at Work Receiving and warehousing e-statements: GE solved the problem of accessing and retaining bank account statement information for 14,000 accounts across more than 100 banking relationships and 98 countries by working with JP Morgan, BofA Merrill and SWIFT. The project will save GE US$1.5m, but more importantly it will eliminate the need to store paper documents and deliver critical process efficiencies. According to one of the judges, speaking under the ‘Chatham House’ conditions of anonymity, this winning entry was “one of the best” and the “objectives were met with return on investment [ROI] being realised”. Highly commended:

• Johnson Controls International SWIFTNet (TRAX) Implementation in Asia-Pacific/Middle East. • eBay - SWIFT Implementation.

A small internal project team of just two people, working with the assistance of Deutsche Bank, rose to the challenge of delivering a single worldwide, consolidated bank guarantee facility worth more than €150m. Valid for all 250 subsidiaries and using a single procedure and bank platform to minimise errors, the system also has automated reconciliation and fee management to cut costs and time.

commented about the winning Merck entry that he gave “the highest score to the two employees for their perseverance”, highlighting the small amount of resource allocated to such a large project and the success Merck enjoyed in “streamlining multiple banks down to a single bank guarantee provider, utilising automation and STP [straight-through processing] tools”.

WINNERS | gtnews awards f o r G lo bal co rp o rate treasur y 2012

Category sponsor

Working Capital Project of the Year Winner: Microsoft - Taking Liquidity Structures to a Whole New Level Microsoft’s implementation of a completely automated international zero balance account (ZBA) structure has been a game changer for global liquidity management. This initiative has streamlined the cash concentration for hundreds of bank accounts and created a just-in-time funding model for subsidiary operating accounts, all with 100% automation. “The fact that Microsoft developed a scalable platform that was cost-effective and allowed it to reduce counterparty exposure and gain visibility is very impressive and what enabled it to win,” said one of the judges. Highly commended:

• Lehigh Hanson - E-payables Programme.

• Roche - Global Commercial Card Project. Category sponsor

Treasury Technology Implementation Project of the Year

Winner: Toyota Motor Credit Corporation Transforming to a Daily Collateral Exchange

Using Toyota’s Kaizen methodologies, the corporate treasury became the first to perform daily collateral exchanges with zero thresholds and same day settlement. In addition, unsecured exposure was cut from US$1bn to near zero, providing significant financial benefits to the company. Project partners included SWIFT, Bloomberg Valuation Services and Wall Street Systems.

Toyota Collateral Exchange project a high winning rating, one of the judges described it as “pioneering work”, adding that “getting 23 banks to agree to a standard format is not a trivial obstacle to overcome”. Highly commended:

(Note: Four entries were shortlisted in this category due to the volume and quality of the entries and a tie in the scoring)

• Google Inc - M-Pesa Payments Project. • Philips Electronics - Next Generation Philips Payment Factory (NGPPF).

• Celio International - Realising Celio’s Treasury Dream. Category sponsor

Under Gary Bischoping Jr, Dell transformed substantially all worldwide operations to a single treasury management system (TMS).

Treasury Team of the Year Winner: QinetiQ - Delivering Best-in-class Treasury Services Defence and security company QinetiQ’s treasury team of five people, working across the UK, North America and Australia, has delivered a fast and ambitious turnaround strategy, cutting debts and increasing working capital during a tough economic environment. In praising the winning treasury team at QinetiQ, one of the senior members of the awards judging panel said they took “… some good and diverse steps to restore QinetiQ’s financial position.” Highly commended:

• Belron - Treasury Evolution.

• Live Nation - Integrated Global Cash and Risk Management Platform.

Explaining why she personally gave the GLOBAL TREASURY BRIEFING | Vol 5 No.2 | 19

WINNERS | gtnews awards f o r G lo bal co rp o rate treasur y 2012

Category sponsor

I can show this award to the board and say, ‘look this is what we've achieved

Corporate Treasurer of the Year (Readers’ Choice Award)

(Note: This category is nominated by and voted on by readers)

Winner: Gary Bischoping Jr, Vice President and Treasurer, Dell Under Gary Bischoping Jr, Dell transformed substantially all worldwide operations to a single treasury management system (TMS). The TMS now handles treasury activities for more than 700 bank accounts in 100+ countries. Bischoping also created a centralised operations team in Bratislava, Slovakia. Now the Dell treasury operations team manages global cash positioning covering all EMEA and Americas time zones. Highly commended:

• Bill Lowe, SVP, Treasurer, Live Nation Entertainment.

• Lisa Stone, Group Treasurer, Belron Group. Category sponsor

Gold Award (Overall Winner) This award is quite simply the highest scoring entry in the entire gtnews Awards 2012. It recognises excellence in treasury management and honours the corporate treasury demonstrating innovation, best practice, and operating as a strategic partner to the business.

Entered into the Supply Chain/Trade Finance category, this small internal project team consisting of just two people, and working with the assistance of Deutsche Bank, rose to the challenge of delivering 20 | GLOBAL TREASURY BRIEFING | Vol 5 No.2

Reaction Quotes “Against the backdrop of the eurozone crisis and continuing economic uncertainty, the mood here tonight was still buoyant and I am sure everyone found the opportunity to network in an informal environment beneficial,” said BofA Merrill's Berndt. “Whether or not you’ve won tonight, we congratulate you on your efforts,” she added. Responding to the night's festivities, Roland Rechtsteiner, a partner at the Oiler Wyman consultancy, said that “it was a lovely evening” and that “there were some great, deserving winners.” One of the most prominent winners of the evening was Merck, which won the Gold Award at the 2012 gtnews Awards with their top scoring entry into the Supply Chain/Trade Finance Project of the Year category entry, which garnered the highest score among all the entries, across all the categories. According to the delighted Joerg Bermuller, director and head of cash and risk management, corporate finance and treasury at the pharmaceutical firm: “I'm very happy to get such a prestigious award from gtnews.” “I can show this award to the board and say, ‘look this is what we've achieved against competition from major multinational car manufacturers and various other significant treasury departments’. I am very very happy with the accolade,” he added with a wide smile, before going off to celebrate his treasury’s win with colleagues and peers from around the world.

Winner: Merck KGaA - Global Guarantee Management (Letter of Credit)

a single worldwide, consolidated bank guarantee facility worth more than €150m. Valid for all of Merk's 250 subsidiaries and using a single procedure and bank platform to minimise errors, the system also has automated reconciliation and fee management to cut costs and time.

J U d g e s | gtnews awards f o r G lo bal co rp o rate treasur y 2012

The Judging Panel All entrants to the gtnews Awards for Global Corporate Treasury 2012, sponsored by BofA Merrill, were judged by a highly qualified team of corporate treasurers. The peer review system in place for the Awards ensures that all entries are judged fairly on their merits by people who do the job themselves on a day-to-day basis and are well placed to pick the winners. The judging panel were assigned to the categories that best matched their expertise and brought their hundreds of years of combined experience to bear on deciding who should win. The judging panel of 14 highly qualified professionals is completely independent: neither the Awards’ sponsors nor gtnews itself has any control over which entries succeed. Michael Connolly, vice president and treasurer of Tiffany & Co., who acted as compere for the Awards evening and is the serving chairman of the board of directors at the Association for Financial Professionals (AFP), unveiled the winners in 2012. He commented on what an “honour” it had been to see how treasury colleagues from around the world had risen to the challenge of succeeding in today’s tough financial environment. Another member of the judging panel, Craig Ehrnst, a certified treasury professional (CTP) and treasurer at NCCI Holdings, said he was impressed by “the scope and quality of the entries”, while Linda Williams, assistant group treasurer at Thomas Cook Group said she found them “inspiring”. According to Craig Busch, group treasurer at WorleyParsons, “the execution of the various projects was extremely high, which was even more impressive given the high degree of volatility that now exists in the markets that treasury operates in.” For Anthony Scaglione, CTP, senior vice president (SVP) of merger and acquisition (M&A) and corporate treasurer at ABM Industries, “the entries showcased a broad base of industry expertise and, in some cases, leading edge solutions”, while fellow judging panel member, Rick Thirion, vice president of treasury at Etihad Airways, said he thought “the standard of submissions continues to improve year-by-year.” The judges for the gtnews Awards 2012 were as follows:

Craig Busch

Group Treasurer at WorleyParsons

Craig Busch is group treasurer of Worley Parsons, a top 50 Australian Stock Exchange listed company employing more than 35,000 people across 43 countries. Busch is responsible for the global liquidity, funding and risk management strategies for the group and the management of the global treasury centres. He has 25 years of experience in financial markets, including as head of international and treasury for banks in Australia and Japan.

Michael Connolly

Vice President and Treasurer at Tiffany & Co.

Mike Connolly is the vice president and treasurer of Tiffany & Co., the world renowned jeweller and specialty retailer with retail stores and manufacturing and distribution facilities throughout the US, Europe, Asia and Latin America. Having been with Tiffany & Co. for over 22 years, Connolly's primary areas of responsibility include treasury operations, global tax matters, financial risk management, operational risk management, credit, accounts receivable (A/R) and insurance. He is also a member of the Tiffany & Co. pension, enterprise risk management, business recovery and continuity, security and safety committees. Connolly also currently serves as chairman of the board of directors of the AFP. GLOBAL TREASURY BRIEFING | Vol 5 No.2 | 21

J U d g e s | gtnews awards f o r G lo bal co rp o rate treasur y 2012

Craig Ehrnst

CTP, Treasurer at NCCI Holdings

Craig Ehrnst has been treasurer of NCCI Holdings in Boca Raton, Florida, US, since 2000. He was formerly with ExxonMobil's Latin American affiliate as a senior treasury manager. Ehrnst has been a member of the board of directors since 2008. He currently serves as a member on the policy committee. He was a member of the AN08 Annual Conference Task Force and in the past he has served as the chairman of the Treasury Management Advisory Group, as well as with the AFP Working Capital Management Task Force. He has been a speaker at the AFP Annual Conference in past years, and currently serves on several local community advisory boards.

Jeff Johnson

CTP, Treasurer and Vice President, Investor Relations at Deluxe

Jeff Johnson is treasurer and vice president, investor relations at Deluxe in Shoreview, Minnesota, US. His responsibilities at Deluxe include treasury operations, investor relations, retirement plans, and risk management. Prior to joining Deluxe, Johnson was chief financial officer (CFO) with ABS Global. He is currently a member of the AFP Finance Committee and has spoken at the organisationâ&#x20AC;&#x2122;s annual conference.

Robert Polansky

Assistant Treasurer, Treasury Operations at General Mills

Robert Polansky, chartered financial analyst (CFA), is assistant treasurer, treasury operations at General Mills in Minneapolis, US. Polansky earned AB and MBA degrees from the University of Chicago, and has been in General Mills corporate treasury for more than 25 years. His current areas of responsibility include overseeing the cash management function and managing all treasury trading operations including short-term and long-term debt, short-term investments, stock repurchase, interest rate derivatives and foreign exchange. Polansky also led implementation of SAP's treasury module, value-at-risk (VaR) for treasury and supply chain, and treasury issues of General Mills' Supply Chain Finance Project, which won the gtnews Corporate Treasury Gold Award in 2010.

Stacy Rosenthal

Head of Corporate & Payments Strategy Americas at SWIFT

22 | GLOBAL TREASURY BRIEFING | Vol 5 No.2

All articles ÂŠ 2012 C-Stream Limited

Stacy Rosenthal joined SWIFT in early 2008 from Bank of America. At SWIFT, Rosenthal focuses on strategic banking and corporate initiatives, working on key projects with market infrastructures, banks and corporates including new product innovation, global remittances, information reporting, exception management and electronic bank account management (eBAM). While at Bank of America, she was SVP, product consulting in global treasury. She served as a subject matter expert for treasury front/back office integration, comprehensive payables, and electronic receivables. Rosenthal has broad knowledge of treasury management and the transformation from paper to electronic solutions. She was with Bank of America from 2003-2008. For 10 years prior to that, Rosenthal worked for leading enterprise software organisations on global initiatives. Her areas of focus included sales, business development, consulting, product launch and project management. Rosenthal has a BA degree from State University of New York at Albany and a MBA in management and technology from Long Island University at CW Post.

J U d g e s | gtnews awards f o r G lo bal co rp o rate treasur y 2012

Anthony Scaglione

CTP, SVP of M&A and Corporate Treasurer at ABM Industries

Anthony Scaglione is vice president and corporate treasurer at ABM Industries in New York, NY. Prior to joining ABM Industries, Scaglione was vice president, assistant treasurer at CA. He currently serves as a member of the audit committee, as well as the strategic alliance committee. He has presented at a number of AFP conferences and gatherings.

Rey Sermonia Treasurer

Most recently Rey Sermonia was treasurer of Qatargas in Doha, Qatar. He received his MBA from the University of Chicago and his MA from Williams College, Williamstown, Massachusetts, USA. Sermonia has a certificate in International Cash Management (CertICM) from the Association of Corporate Treasurers (ACT) and a certificate in Financial Asset Management and Engineering (CFAME) from the Swiss Finance Institute.

Paul Stheeman

Independent Consultant

Paul Stheeman started his career in international banking in various roles at Commerzbank in Germany. He then moved to the oil and gas industry, where he has been in several treasury functions at Deminex, Veba Oil & Gas and most recently as director international treasury with Petro-Canada. He retired in April 2010 and is now using his experience to advise corporates in treasury matters. During his long career, Stheeman has worked in several European countries and has broad experience in setting up new treasury operations centres and in-house banks (IHB). He also has extensive experience in international cash management and financial risk management.

Ricky Thirion

All articles ÂŠ 2012 C-Stream Limited

Vice President, Treasury, Etihad Airways

Ricky Thirion oversees the treasury portfolio at Etihad Airways, which includes the treasury, corporate investments, corporate and structured finance and insurance departments. His highest qualification is a Masters Degree in Mechanical and Aeronautical Engineering, and he also holds various financial and business management related qualifications. Thirion was voted Global Corporate Treasurer of the Year 2010 by the readership of gtnews and is an honorary fellow of the ACT. Prior to his role as vice president of treasury at Etihad Airways, Thirion was group treasurer at South African Airways, managing director for Andisa Treasury Solutions, and managing director with Standard Risk and Treasury Management Services, a subsidiary of the Standard Bank Group in South Africa.

GLOBAL TREASURY BRIEFING | Vol 5 No.2 | 23

J U d g e s | gtnews awards f o r G lo bal co rp o rate treasur y 2012

Peter van Rood

Corporate Director of Treasury, AkzoNobel

Peter van Rood was appointed as corporate director of treasury for AkzoNobel in September 2007. Since then he has been responsible for a full transformation of the treasury function, comprising the replacement of IT systems, implementation of cash management solutions, benchmarking and rollout of new policies and a reorganisation of the department. Prior to joining AkzoNobel van Rood worked for 17 years for the Royal Dutch Shell Group in various roles across pensions, trading and corporate. During that period he was involved in a broad range of finance disciplines and projects. Van Rood completed a university degree in business economics from the Erasmus University in Rotterdam, the Netherlands, and holds a chartered financial analyst (CFA) designation and a controllers degree.

Linda Williams

Assistant Group Treasurer, Thomas Cook Group

Linda Williams is primarily responsible for the back office of Thomas Cook treasury, a key role given the extent of the travel group's hedging requirements and cash management activities. Reporting to the group treasurer, she has been with the company for four years and is responsible for some key projects including the development of their cash concentration structure and replacing the treasury management system (TMS). Prior to joining Thomas Cook, Williams was treasurer at Metronet Rail and the Laurel Pub Company. Holding the MCT qualification, she also trained as an accountant and held several positions in finance with Whitbread, the retail and leisure group.

Enrico Camerinelli Senior Analyst, Aite

Enrico Camerinelli is a senior analyst within Aite Group's wholesale banking group, based in Europe. His current research at the consultancy focuses on global transaction banking, trade finance, cash management, the single euro payments area (SEPA) and the financial supply chain. Prior to joining Aite, Camerinelli was an analyst at Celent and, previously, an independent analyst and advisor to organisations such as the Supply Chain Council and the Theory of Constraints International Certification Organisation. Camerinelli has been vice president and research leader of the worldwide practice of Enterprise Application Strategies at Meta Group, and a senior marketing consultant at JD Edwards. He has also worked for more than 10 years in the industry as a supply chain and plant manager.

Nancy Atkinson

Senior Analyst, Aite

24 | GLOBAL TREASURY BRIEFING | Vol 5 No.2

All articles ÂŠ 2012 C-Stream Limited

Nancy Atkinson is a senior analyst at Aite Group, specialising in wholesale banking issues including global business-initiated payments, trade finance and the financial supply chain, plus working capital management. Prior to joining the Aite consultancy, Atkinson was first vice president of institutional marketing at Mellon Bank, where she worked for more than 20 years in treasury product and operations management. She is a former vice chairperson of the National Automated Clearing House Association (NACHA) cross-border ACH Council, which developed US-Canada-Mexico cross-border ACH capabilities. She is also a former executive committee member of the Financial Services Technology Consortium (FSTC), where she prototyped the Bank Internet Payment System (BIPS), an early eXtensible Markup Language (XML)-based protocol. She holds an MBA from Cornell University and is a certified cash manager (CCM).

Willem Dokkum Global Head PCM Sales Corporate & Institutional Clients + 31 (0)20 563 9921

Bottom line: [Finding ways to unlock your cash] It takes time and money to unravel what is the most efficient way to manage cash and reduce costs. Optimising your liquidity and processes allows you to unlock your cash and gain access to your working capital. Our consultants are fully committed to helping you find the solution perfectly suited to your business and processes. www.unlockyourcash.eu

Scan and find out more

ING Commercial Banking is a marketing name of ING Bank N.V., registered by the Netherlands Authority for the Financial Markets (AFM). Copyright ING Commercial Banking (2012).

A RECORD NUMBER OF CORPORATE PRACTITIONERS will be in attendance at this yearâ&#x20AC;&#x2122;s AFP Annual Conference. Join BOLD & INNOVATIVE companies like Intel, Dow Corning, Adobe Systems, Amway and The Coca-Cola Company.

CUSTOMIZE YOUR CONFERENCE EXPERIENCE. Choose from 125

sessions of unbiased content, connect with your peers, compare and validate your practices and explore new technology. Earn up to 30.3 CTP/CCM recertification credits within four days.

BE INSPIRED. BE BOLD. BE IN MIAMI. Register by September 7. Save $200. www.AFPconference.org/2012

AWARDS CASE STUDY | Toyota F i nanc i al S erv i ces

Headline sponsor

Awards Case Study: Toyota Financial Services' Approach Towards Managing Brazilian Sovereign Risk This article examines Toyota Financial Services' evolution of managing sovereign risk in Brazil to support its intercompany lending activities. It is based upon the firm’s winning entry into the gtnews Awards 2012, risk management category, and details how the division found a special form of insurance known as political risk insurance (PRI) to be the most successful choice to suit its needs. The case study is shared here to provide an overview of sovereign risk procedures and to encourage best practice among treasuries.

Emerging markets are a strategic priority for Toyota Motors Corporation. Its captive finance arm, Toyota Financial Services, is expected to support Toyota’s sales efforts in these markets whenever possible. Access to diversified, cost-effective sources of term liquidity is therefore critical to Toyota Financial Services’ success in maintaining its competitive position in markets such as Brazil. But even when attractive offshore funding opportunities arise, internal risk management policies related to emerging market sovereign risk exposure must be respected. What are some of the options and possibilities available to treasurers wanting to mitigate the sovereign risk associated with cross-border funding? This article will discuss Toyota Financial

Services’ evolution and approach towards managing its exposure to Brazilian sovereign risk.

Background and Funding Opportunity

Banco Toyota do Brasil (BTB) is Toyota Financial Services’ affiliate in Brazil. BTB was established in 1999 to provide consumer retail, lease, dealer financing and insurance products to Toyota/Lexus dealers and their customers in Brazil. BTB’s US$1bn balance sheet has benefited from the strong Brazilian economy and growth in the domestic automotive market. BTB funds itself primarily through the Brazilian interbank market and issues certificates of deposit (CDs) and finance bills supported by a brAAA, standalone, domestic credit rating from Standard & Poor’s (S&P). Strong capital inflows to Brazil over the past

Paul Boodee, Director, Americas Region Finance, Toyota Financial Services. Paul Boodee is director of Americas region finance for Toyota Financial Services (TFS). Based out of Torrance, California, US, Boodee joined TFS in 2006 and currently has oversight of the treasury and financial planning and analysis (FP&A) activities of TFS' international affiliates in the Americas region. Prior to joining Toyota, Boodee spent over 17 years in various international roles in treasury with GMAC Financial Services. He established and led GMAC's treasury centres in Singapore and Melbourne, Australia, and his last position was as director of capital markets at GMAC's European treasury centre in Brussels, Belgium. Boodee holds a Masters in International Management from Thunderbird School of Global Management and a BBA from the University of Texas at Arlington.

GLOBAL TREASURY BRIEFING | Vol 5 No.2 | 27

AWARDS CASE STUDY | Toyota F i nanc i al S erv i ces of the probability (or improbability) of a Brazilian sovereign event actually occurring, Toyota Financial Services’ global policies forbade exposure of its debt to emerging market sovereign risk. Unless the risk could be properly mitigated, BTB would lose its offshore funding opportunity.

Left to right; Michael Connolly, vice president and treasuer of Tiffany & Co., and compere of the gtnews Awards 2012, presents the trophy for the Risk Management Project of the Year to Paul Boodee, director, Americas region finance, Toyota Financial Services, in attendance with Jennifer Boussuge, head of global treasury sales from the overall sponsors BofA Merrill.

few years have created pricing disparities between the Brazilian real (BRL) onshore and offshore swap markets. Periodically, companies located in Brazil that borrow foreign currency from offshore sources are able to swap and hedge the proceeds in BRL onshore at significant savings compared to domestic alternatives. BTB wished to take full advantage of such opportunities, and Toyota Financial Services’ global banking relationships were engaged.

Mitigating Sovereign Risk When Funding from Offshore Banks

28 | GLOBAL TREASURY BRIEFING | Vol 5 No.2

The banks’ reactions were mixed. Some were concerned with the revised language, while others were comfortable with their existing exposure levels to Brazilian risk. And it was clear that some would simply price the sovereign risk into the loans’ cost of funds. Either way, the end result left BTB in a position to opportunistically execute USD term loans and benefit from the swap arbitrage, while simultaneously complying with corporate risk management policies.

Sovereign Risk and Cross-border Intercompany Funding in a Time of Crisis BTB has drawn a number of offshore bank loans since 2007, and this funding source and the indirect method of managing sovereign risk served BTB well for several years. As the global financial crisis continued to deteriorate, however, many international banks either began to deleverage from emerging markets, or capital constraints made their loan pricing uneconomical. Although the arbitrage opportunities for Brazilian borrowers that could still fund offshore persisted, BTB couldn’t effectively access the global capital markets to tap foreign currency debt. However, BTB’s sister company, Toyota Motors Credit Corporation (TMCC),

Several banks were prepared to provide BTB with US dollar (USD) denominated term loans from their US offices, and the economics were compelling. However, a key risk was BTB’s inability to pay its lenders, which in turn triggered an event of default under its loan agreements. The issue was not BTB’s inability to pay because of its creditworthiness but, rather, its inability to pay due to a Brazilian sovereign event. Specifically, BTB would be exposed if the Brazilian government took actions that resulted in the BRL becoming inconvertible and/or if funds were non-transferable outside of Brazil. In other words, if BTB couldn’t swap BRL into USD or remit funds back to its offshore lenders, then it would be in technical default. And irrespective

The solution was to restructure BTB’s loan agreements. If BTB was unable to pay due to a sovereign event, then the loan agreement would now allow BTB to pay the equivalent USD amount in BRL to an account in Brazil as specified by the lender. This in turn fulfilled BTB’s USD loan payment obligations under the agreement. The ability of BTB to substitute its cross-border payment obligation with an in-country payment in its local currency effectively extinguished its exposure. In short, the sovereign risk was shifted from BTB to the banks.

AWARDS CASE STUDY | Toyota F i nanc i al S erv i ces could. And with a global credit rating of AA-/Aa3, TMCC can source liquidity through its global funding platforms more cost effectively than most international banks or other captive finance competitors. TMCC is Toyota Financial Services’ US affiliate. TMCC’s team of 45 treasury professionals located in Torrance, California, co-ordinate Toyota Financial Services’ global capital market funding activities (US$20.5bn of debt securities issued in the US last year). It manages over US$20bn of direct issuance commercial paper and oversees the treasury activities of its Americas region affiliates. TMCC is already an intercompany funding provider to multiple affiliates and has the capabilities to easily source and manage term funding for BTB. But even though a compelling economic case was made, TMCC management was unprepared at that time to assume any Brazilian cross-border risk, particularly given the on-going precarious European sovereign environment.

TMCC’s treasury team explored different risk management possibilities such as the purchase of Brazilian credit default swaps (CDS) or the execution offsetting derivative structures. However, all were imperfect hedges that were either cost prohibitive or would leave TMCC exposed to risk. For example, a CDS would be ineffective against a currency inconvertibility event if the Brazilian government continued to make payments on its sovereign bonds. And with offsetting derivatives structures, one must make strong assumptions with respect to the behaviour of the BRL onshore/offshore swap markets following a sovereign event. After further evaluation, treasury ultimately chose political risk insurance to protect its intercompany lending activities.

Political Risk Insurance

Political risk insurance (PRI) functions much like any other insurance policy, whereby a policy is underwritten to protect a policyholder against certain risks during the policy’s life. PRI is generally meant to protect the policyholder against loss from expropriation, political violence, or

currency inconvertibility/transferability events. Loss from expropriation or political violence is not a material risk applicable to Toyota Financial Services’ business. However, loss from inconvertibility/ transferability events related to crossborder lending to emerging market affiliates is indeed a material risk. A policy to address this sole risk could be written for TMCC. TMCC approached a broker who specialised in PRI. The broker solicited underwriters’ interest in insuring TMCC’s potential lending activities with BTB. TMCC then provided a forecast of its portfolio including loan amounts, tenures, disbursement dates, forecast interest rates, and the loans’ amortisation schedule (quarterly loan amortisation versus bullet repayment was chosen to reduce the policy’s premium). The underwriters quoted an annual premium based on the portfolio’s outstanding balance each year (note that the premium’s cost is clearly driven by the probability of the risk event occurring: e.g. sovereign risk for Brazil is much cheaper to insure today than, say, for Argentina or Venezuela). At the end of each premium period, a ‘true up’ would occur between the forecasted loans’ cash flows and the drawn loans’ cash flows, with the premium difference added or subtracted to the following year’s premium.

Political risk insurance (PRI) functions much like any other insurance policy, whereby a policy is underwritten to protect a policyholder against certain risks

TMCC may make a claim after proving loss from non-payment due to the risk events defined in the policy. Particular to PRI is a negotiable ‘waiting period’ of anywhere between 3-12 months before compensation for the claim is paid. The waiting period provides time for the sovereign event to potentially reverse or correct, allowing the borrower to then resume payments or make ‘catch-up’ payments to the insured during this period.

Results

TMCC executed a US$150m, sevenyear policy in 2011 to protect TMCC against losses on a basket of Brazilian intercompany loans. To date, loans totalling US$125m with tenures of 6-7 years have been disbursed. BTB was able to capitalise GLOBAL TREASURY BRIEFING | Vol 5 No.2 | 29

AWARDS CASE STUDY | Toyota F i nanc i al S erv i ces

Political risk insurance may not be the most suitable or appropriate choice in all cases for treasurers wanting to manage crossborder risk

on the swap arbitrage opportunities and will enjoy risk-adjusted interest expense savings of US$16m over the life of these loans compared to domestic alternatives. Furthermore, BTB is well-positioned to continue offering competitive automotive financing to Toyota dealers and their customers, particularly when production of small-sized vehicles in Toyota’s new Brazilian factory commences later this year. Additionally, the evolution of TMCC treasury’s efforts to deliver effective risk mitigation solutions has provided the company’s management with an enhanced understanding of emerging market sovereign risk and related risk management strategies. All of the affiliates’ existing offshore funding arrangements have now been reviewed to determine if proper risk mitigation structures are in place, and global risk management policies and guidelines have since been modified. Consequently, TMCC’s intercompany funding capabilities can be leveraged and opportunistic funding structures for other affiliates in emerging markets are under evaluation.

Toyota Financial Services 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 US$91.7bn. It is part of a worldwide network of comprehensive financial services offered by TFS, a whollyowned subsidiary of Toyota Motor. A team of 45 dedicated treasury professionals located in Torrance, California, US, support TMCC and other global affiliates' treasury requirements.

Political risk insurance may not be the most suitable or appropriate choice in all cases for treasurers wanting to manage cross-border risk. For TMCC to support its intercompany lending opportunities and meet its global policy requirements, however, PRI was chosen as the simpler, better correlated and more cost-effective solution to manage its exposure to Brazilian sovereign risk.

30 | GLOBAL TREASURY BRIEFING | Vol 5 No.2

This case study is based upon an entry into the gtnews Awards for Global Corporate Treasury 2012, sponsored by Bank of America Merrill Lynch (BofA Merrill). The winners of this year’s annual awards, now in its third staging, were revealed at a gala dinner on 24 May at the Sofitel Grand Hotel in Amsterdam, the Netherlands, after the opening of the two-day gtnews Forum for Global Corporate Treasury. This winning Toyota entry is shared here from the Risk Management Project of the Year category as a best practice guideline and commentary on Brazilian operations. To see a full report on all the Awards winners and the Forum turn to pages 14 and 4 respectively. Look out for more such case studies on the gtnews website at www.gtnews.com.

AWARDS CASE STUDY | D assault S y st è mes

Headline sponsor

Awards Case Study: Dassault Systèmes Creates a Fully Secure Approach for XML Payment Factory

Dassault Systèmes centralised its European payments processing hub at its French headquarters and won a highly commended certificate at the gtnews Awards 2012 in the shared service / payment factories category for the project. It anticipates the benefits of the single euro payments area (SEPA) and uses a treasury management system (TMS), SWIFT, XML ISO 20022 messaging standards, and many other technologies to aid efficient straight-through processing (STP). The project is explained here in the form of a case study to help other treasuries understand the technology, processes and procedures in moving to a payment factory. Dassault Systèmes, principally a maker and leader of design and product lifecycle management (PLM) solutions, had a clear objective it wanted to meet: to better organise, control and secure the payments issuing from its European shared service centres (SSCs). The group treasury therefore applied the concept of straight-through processing (STP) to build a payment factory governed by XML ISO 20022 standards, using SWIFT’s 3SKey electronic signature security architecture and SWIFTNet transmission to reach its aim and its bank partners across Europe. Over the past few years the financial and

economic environment has changed and the mode of communication between banks and corporates has evolved as well. Companies are looking for more and more harmonisation of internal processes, and to ensure the security of payment and data flows while dealing with external partners. This helps efficiency and delivers a resilient best practice approach to modern business. The single euro payments area (SEPA) reform is also an important argument in favour of introducing a payment factory implementation, simply because if you are overhauling a payment infrastructure anyway to ensure compliance then you might as well improve your system at

This article was written by three authors at Dassault Systèmes. John Colleemallay is the senior director, group treasury and financing. Anthony Lefeuvre is the senior manager and head of controlling reporting, systems and projects, while Natalia Hulchuk is the group treasury senior analyst, on the same team at Dassault Systèmes.

GLOBAL TREASURY BRIEFING | Vol 5 No.2 | 31

AWARDS CASE STUDY | D assault S y st è mes

The payment factory recently introduced was naturally viewed as a method to better manage the risk and improve visibility on financing needs

the same time and take advantage of the standardised instruments and environment. The harmonisation of payments within Europe, and the standardisation of the payment format on XML ISO 20022 messaging, has motivated more and more corporates to centralise internal workflows. A payment factory permits firms, at the same time, to harmonise the communications offered by SEPA and to centralise the payment transactions. As a result of progress in information and communication technology and the evolution of regulation, the treasurer now focuses more on risk management. The main objective of Dassault Systèmes, as a multinational cross-border group, was to have a global automated solution enabling the centralisation, harmonisation and security of our processes. Indeed, the payment factory recently introduced was naturally viewed as a method to better manage the risk and improve visibility on financing needs and liquidity management. The geographic structure of Dassault Systèmes cash management, organised in three zones spanning Asia, Europe and the US, governed the decision to create a first payment factory in the middle time zone in Europe at its headquarters, which centralised all regional processing in one hub covering three important European SSCs. The centres cover southern Europe, Middle East and Africa (EMEA), including France, Turkey and Israel; central Europe including Germany and Poland; and northern Europe including the UK and Scandinavia.

The means of achieving this was to implement an STP payment workflow, 32 | GLOBAL TREASURY BRIEFING | Vol 5 No.2

After the process was plotted, the technology systems that would be used to harmonise and secure the payments was addressed, with SWIFT connectivity quickly identified as essential for providing the desired multi-bank capability. In October 2010 Dassault Systèmes adopted SWIFTNet as its sole and unique bank communication protocol to transmit all files to its main banks in a harmonised manner. The payment files should be sent in one standardised format it was decided, XML ISO 20022. To secure the transmission of payments to banks by SWIFTNet, the firm centralised everything at its core treasury in the French HQ, including the management of signatories’ limits and insisted upon SWIFT’s 3SKey electronic signature and security architecture. Selecting a centralised bank partner was also important. As of today, among banking partners, there are still some institutions that are not yet using the 3SKey technology. Therefore, the challenge was not only to centralise the payment flows internally on one TMS, but also to choose a wellstructured and reactive bank partner that could help centralise the payments on its system before forwarding them on, still in a secure manner, to beneficiaries all over Europe. Dassault Systèmes' main bank in its ‘home’ market of France, Société Générale (SocGen), got the role: to centralise and send the 3SKey signed payments directly to other banks which have not yet implemented the technology.

Such an ambitious project needs to be based on a strong organisation, a unified and automated process, secure high technology procedures, narrowly defined planning and, of course, on reliable partners. Defining the organisational plan was the first, key step and it was quickly decided to centralise the payments issued by three European SSCs at the firm’s headquarters (HQ) in France, creating only one processing centre and economy-of-scale savings.

combined with electronic signatures (using 3SKey authentication) and SWIFTNet transmission to reach all bank partners across the region. Dassault Systèmes decided to apply the STP concept since it is one of the main characteristics of a payment factory. The new architecture was designed like a hub enabling an automatic and straight link between the main finance enterprise resource planning (ERP) software, provided by PeopleSoft, with the treasury management system (TMS) supplied by Kyriba, and the bank and supplier systems that Dassault Systèmes regularly interacts with.

AWARDS CASE STUDY | D assault S y st è mes

Planning: Define the Actions, Timeline and Assign Resources Analysis and implementation of XML ISO 20022

This is a quite long stage and it took Dassault Systèmes several months to develop a core message in ERP in a flexible manner. The idea was that the standard would, as much as possible, be close to the requirements of the issuing bank. Indeed, the difficulty of this piece of the puzzle is the adaptation of the XML ISO 20022 to the rulebooks of the different banks. Though the SEPA Credit Transfer (SCT) instrument was based on an ISO 20022 standard, some banks had their own interpretation of the format. In some cases, Dassault Systèmes had to develop the format to be compatible with each bank. The testing was quite time consuming since this phase was covering all the project scope (i.e. 20 entities in Europe) and was performed in collaboration with the internal IT department and bank’s teams.

Interfacing ERP with TMS

The creation of the in-house hub aimed not only at achieving communication between the two systems but the fluid transmission of data in the correct format. Another gain is that the payment flows centralised

on one treasury platform generate automatic forecast information into Dassault Systèmes’ cash management tool, improving visibility and delivering better liquidity and asset management. The difficulty was the updating of ERP suppliers’ databases with the International Bank Account Numbers (IBANs) and Bank Identifier Codes (BICs) needed for SEPA payments and with the Basic Bank Account Numbers (BBANs) or local BANs for nonSEPA out of region payments. Since the data format was variable, the files feeding with mandatory payment information according to the beneficiary bank was quite difficult, especially in the Nordic countries where local BAN (Giro) were required.

Though the SEPA Credit Transfer (SCT) instrument was based on an ISO 20022 standard, some banks had their own interpretation of the format

SWIFTNet and 3SKey implementation

This was very challenging because Dassault Systèmes had to combine and centralise the different types (suppliers, expenses, etc) of payments on one Kyriba supported TMS, which is also the firm’s SWIFTNet and electronic signature platform. On to this was added the 3SKey approval workflow, depending on the payment type and bank signatories limits before files were released via SWIFT’s FileAct channel to the main banking partners in Europe. The major gains achieved by introducing

Figure 1: Dassault Systèmes Payment Factory Architecture

Source: Dassault Systèmes

GLOBAL TREASURY BRIEFING | Vol 5 No.2 | 33

AWARDS CASE STUDY | D assault S y st è mes

The treasury team can now concentrate more on value-added tasks, rather than on monitoring payment flows

a payment factory are illustrated in Figure 1, but chiefly Dassault Systèmes benefitted from a fully automated payment chain from ERP via TMS, straight to the bank. The rejigged process is as follows: ERP (payments input) → TMS (cash forecast creation) → 3SKey electronic signature → SWIFTNet FileAct transmission → Centralising bank → SWIFTNet FIN sending → Banks in Nordic and other European countries. Dassault Systèmes centralised payments to more than 10 beneficiary banks in 10 European countries on a platform within its treasury. On a quarterly basis, 12,500 payment flows are now transiting the department in a secure manner. Since the payment process is completely automated from the ERP to the banks, the gain in time previously spent on manual paper-based validation, via fax, is widely appreciated. The treasury team can now concentrate more on value-added tasks, rather than on monitoring payment flows. The payment format streamlining, and in particular, the adoption of XML ISO 20022 led to the replacement of local banking formats and significant reduction in the use of local e-banking sites. This was a key success point for Dassault Systèmes, whereby not only was the security of its bank flows enhanced, but also security was improved on systems access by reducing the number of bank platforms and several tokens to just one TMS for the group and one 3SKey per signatory.

opening of the two-day gtnews Forum for Global Corporate Treasury. This highly commended Dassault Systèmes entry is shared here from the Shared Service / Payment Factories Project of the Year category and is intended as a best practice guideline and commentary on payment factories. To see a full report on all the Awards winners and the Forum turn to pages 14 and 4 respectively. Look out for more such case studies on the gtnews website at www.gtnews.com.

Dassault Systèmes Dassault Systèmes, the 3D experience company, provides businesses and people with virtual universes to imagine sustainable innovations. Its solutions seek to transform the way products are designed, produced and supported. Dassault Systèmes' collaborative solutions foster social innovation, expanding possibilities for the virtual world in an effort to improve the real world. The group has over 150,000 customers of all sizes, across all industrial sectors, in more than 80 countries around the world.

Finally, the interface between systems allows Dassault Systèmes to improve treasury cash forecasts by receiving automatic information in the TMS, thereby optimising the cash management and liquidity functions, which are naturally crucial for any multinational group like Dassault Systèmes or similarly-sized firms.

34 | GLOBAL TREASURY BRIEFING | Vol 5 No.2

This case study is based upon an entry into the gtnews Awards for Global Corporate Treasury 2012, sponsored by Bank of America Merrill Lynch (BofA Merrill). The highly commended entrants and winners of this year’s annual awards, now in its third staging, were revealed at a gala dinner on 24 May at the Sofitel Grand Hotel in Amsterdam, the Netherlands, after the

FEATURE | C A S H M A N A G E M E N T I S K E Y S AY S E TC