15 october 2003 15:00 treasury tools for balance sheet management at abx logistics jean-claude...

15 October 2003 15:00 www.abxlogistics.com

Treasury Tools for Balance Sheet ManagementTreasury Tools for Balance Sheet Managementat ABX LOGISTICSat ABX LOGISTICS

Jean-Claude Jossart Treasury Project Manager

Case Study

Yvo K. Vercouteren Corporate Treasurer

15 October 2003 15:00 www.abxlogistics.com 2

Presentation OutlinePresentation Outline

Introducing ABX LOGISTICSIntroducing ABX LOGISTICS : Who are we ?

A Specific environment

Corporate Treasury strategy

The Corporate Treasury infrastructure

Strengthen the Balance Sheet from Treasury ?

Other areas of Corporate Treasury


Corporate IntroductionCorporate Introduction

ABX LOGISTICS Worldwide HQ in Brussels, recently established, is in charge of the Group coordination with a minimum staff (35 people) and covers the following main topics :

Legal aspects

Buying procurement

Financial reporting and controlling

Treasury co-ordination

IT coordination and group projects

ABX LOGISTICS, the Belgian Railways owned transport and logistics company, recently established, is today one of the world's front runners among logistics service providers, with an international network covering 35 countries, 500 Offices, which employs 15,000 people and has a consolidated sales equal to 2,7 billion euros in 2002.


ABX LOGISTICS WorldwideABX LOGISTICS Worldwide

Legal One-stop-shopping

ABX LOGISTICS Worldwide combines all the skills of professional transport and logistics under one banner : distribution, storage, consultancy, …We offer one integrated logistics solution, worldwide : The total We offer one integrated logistics solution, worldwide : The total logistics Matrixlogistics Matrix

Think global, act local

As it manages these services and products as an integrated whole, ABX LOGISTICS can offer all-in, modular logistics solutions that meet the specific needs of its customers at local level.Although we have one global strategy, we respect the business culture Although we have one global strategy, we respect the business culture of each regionof each region


Corporate EnvironmentCorporate Environment

Out of a Belgian Company ABX LOGISTICS has in a 3 years time, i.e. from 1998 to 2001 emerged into an global international one.

Recently the company was set-up as a separate holding with its own managing entities. Its area of activity switched from a local market to a world-wide one. All this was possible keeping into account the slackening of the economic situation in 2002 and 2003 and the uncertainties concerning the general economic evolution.

The Group has achieved spectacular growth through a combination of massive investment and strategic acquisitions of international companies.

One inevitable outcome of acquiring so many local service providers in such a short time frame was an inconsistent network of local sites underlying :

The management of undercapitalized entities

The need to improve ABX LOGISTICS net worth ratio

Ensure a positive return on the cost of acquisitions and development


ABX Logistics SalesABX Logistics Sales

AIR19%

SEA17%

LOGISTICS11%

ROAD51%

PROJECT DIVISION

2%

France22%

RoW0%

Germany28%Italy

22%

Rest of Europe11%

Asia Pacific7%

Americas5%

Belgium5%

The ABX LOGISTICS Matrix in figures :The ABX LOGISTICS Matrix in figures :Product & Sales by Product & Sales by RegionRegion

Spread by Country/Spread by Country/RegionRegionSpread by Spread by ProductProduct


Balance Sheet IssuesBalance Sheet Issues

Balance Sheet Issues - Conceptual Introduction

Within ABX LOGISTICS, the ability to effectively manage capital, while remaining within the constraints of a realistic balance sheet structure, is essential to financial stability. is essential to financial stability.

This ability grows ever more important are our industry constrains, where increasing limits on revenue growth are accompanied by steady expense growth.

ABX LOGISTICS treasury actions focuses on asset/liability management, and the challenges that arise in capitalizing an endowed institution.

Although content addresses the entire balance sheet, information will be concentrated on working working capital decisionscapital decisions, and the effects that capital decisionscapital decisions have on working capitalworking capital.



Management of Balance Sheet is bounded to Working CapitalManagement of Balance Sheet is bounded to Working Capital

Balance Sheet Management should ensure that ABX LOGISTICS is strongly capitalized and that capital is structured in the most effective manner. It also manages capital in our operational entities.

Activities include recommending and implementing of participation re-grouping programs, capital issuance.

The critically important balance sheet and capital resource allocation process resides here

Aggressively managing the balance sheet continues to be an integral part of the ABX LOGISTICS strategy. As part of this strategy, Cash Management, Balance Sheet & Risk Management, actively manages our different businesses by ensuring that the allocation of risk and balance sheet

resources is directed to higher-return and/or strategic growth activities.



Balance Sheet IssuesBalance Sheet Issues - Treasury Conceptual approach

The ABX LOGISTICS Corporate Treasury “infrastructure” provides valuable advanced technical assistance for entities seeking to optimize growth, lower expenses, or manage risk. Which of the following tools could help improve our all-in performance?

Core-Investment Follow-upCore-Investment Follow-upEvaluate the rate-sensitivity of your core investments.

Five-Year Capital StrategyFive-Year Capital StrategyExamine the relationship between ROA, ROE, and leverage.

Funding-Strategy ModelsFunding-Strategy ModelsDo our affiliates prefer long-term fixed-rate loans? How do we measure the profitability of funding these assets using advances.

Marginal Cost of Funds AnalysisMarginal Cost of Funds AnalysisDetermine the impact of paying up for non-rate-sensitive deposits to retain rate-sensitive investment.

Strategies for SuccessStrategies for SuccessWork with industry experts and banks to craft concrete business strategies based on your own balance sheet.


ABX LOGISTICS WorldwideABX LOGISTICS Worldwide

The Corporate Treasury PhilosophyThe Corporate Treasury Philosophy

Develop strategy for cash and debt management (short and long term)

Provide infrastructure for cash, risk and balance sheet management, for the entire organisation (profit centre > < Service Centre)

Corporate Treasury is a leading Sovereign Function within the Group

Service Provider & Support Benchmarking

No Back-Office, No payment factory

Maximising the respect for the global ABX LOGISTICS philosophy : Think global, act LocalThink global, act Local


Corporate TreasuryCorporate Treasury

Global Treasury Infrastructure ConceptGlobal Treasury Infrastructure Concept

CCAASSH H PPOOOOLL

CORPORATE

TREASURY

Risk Management

Cash Mangement

Balance Sheet Mgt.

SecuritisationSecuritisation

Assets MgtAssets Mgt

FX MgtFX Mgt

NettingNetting

GCSGCS

Corp

ora

te stra

tegy


Balance Sheet Management Tools : Balance Sheet Management Tools :

Cash PoolingCash Pooling

MAIN FEATURESMAIN FEATURES

• Notional Pool : pool does not even exist at balance sheet level

• Cross border with central location (but not off-shore respecting corporate governance

• Multi currency : no swaps needed, no exchange risk, no IAS39 impact

• Administration of intercompany loans facilitated or avoided of desirable

• Obtain rapid control over new subsidiaries in key financial aspects



Cash PoolingCash Pooling

IMPACT OF CHOSEN SOLUTIONS IMPACT OF CHOSEN SOLUTIONS

Legal : Thin Capitalisation rules

Tax : Withholding Tax

Accounting : Treated as local bank accounts

Gain rapid control over the different new acquisitions in key financial aspects

Cost benefit aspects



Cash PoolingCash Pooling Global Cross-Border and Multi-Currency Liquidity Management Integration ModelGlobal Cross-Border and Multi-Currency Liquidity Management Integration Model

How does it work ?How does it work ?

Cross Border Cross Border

Multi-Currency Multi-Currency

Notional Pool Notional Pool

INTRADAY REPORTINGMT 942

FX Management

INTERCOMPANY LOANS

INTRO-PAY MT 100-103

(SWEEPS)

Regional Pool AmericasRegional Pool ASIA PACIFIC

Domestic Pool GermanyCROSS BORDER TFT

MULTIBANK REPORTINGMT 940

INTERCOMPANY NETTING


Balance Sheet Management Tools :Balance Sheet Management Tools :Receivables SecuritisationReceivables Securitisation

Net Funding Amount

Conduit transactional structureConduit transactional structure

ADDITIONAL

DEPOSIT

NET POOL

BALANCE

SUBORDONATED

DEPOSIT

INELIGIBLE

RECEIVABLES

NEW

RECEIVABLES

RELEVANT TRANSFERREDRECEIVABLES


Balance Sheet Management Tools :Balance Sheet Management Tools :Receivables SecuritisationReceivables Securitisation

Optimizing Receivables ManagementOptimizing Receivables Management

TOTAL IMPACT

Securitisation(Fixed program term <> Short-Term Roll-Over FundingFactoring(Complete or Selective)Total Receivables Outsourcing(Major Organizational Impact)

Securitisation

Outsourcing

Factoring

-

-

-

-

Complete

Selective

Cash B/S Organisation.

Res.

Term

- - - - -


ABX Global Commerce Solutions ABX Global Commerce Solutions

ABX LOGISTICSOutbound Transport

Air & Sea FreightCustomsStorageLogistics

Distribution

ClientExporter

ABX Global

Commerce Solutions

Credit insurance

Delivery goods & B/LGoods & B/L

+

+

=Asset Backed Funding Capability


Balance Sheet Management Tools :Balance Sheet Management Tools : Global Global Commerce SolutionsCommerce Solutions

Global Commerce Solutions : features and B/S impact MgtGlobal Commerce Solutions : features and B/S impact Mgt

GCS is a financial product that completes the one-stop shoppingone-stop shopping for our clients

Being the dedicated logistic supplier, the legal owner of the goods transported (B/L or AWB) and having set up a complete pre-approved credit insurance , we can obtain Asset Backed funding Asset Backed funding

Through a specific minority participation in the SPV, the transaction remains off balance sheetoff balance sheet


Balance Sheet Management ToolsBalance Sheet Management Tools : : Fixed Asset ManagementFixed Asset Management

Sales & Lease/Rent back operationsSales & Lease/Rent back operations

By definition it is the sale of property by the owner-user of the asset to an investor. By definition it is the sale of property by the owner-user of the asset to an investor. The seller becomes the lessee then leases the property back from the investor who becomes The seller becomes the lessee then leases the property back from the investor who becomes the lessor. the lessor.

Benefits includes Benefits includes - Refinancing your equipment with better monthly payment - Refinancing your equipment with better monthly payment - Creating working capital - Creating working capital - Turning your long term asset to short term - Turning your long term asset to short term - Improving current ratio - Improving current ratio

We want to gain “access” to our assets (infrastructure), not ownership and so remain flexible to fast adapt to any market change

In addition we avoid any “ballast” on our balance sheet


More Corporate Treasury issues : More Corporate Treasury issues : Centralizing ?Centralizing ?

Choosing to Centralize Treasury infrastructure to steer Choosing to Centralize Treasury infrastructure to steer balance sheet of the group ?balance sheet of the group ?

Decentralised Centralised

• Operating Banking relations

• Different bank accounts

• FX Management

• Liquidity Mgt. Decentralised

• Local Funding Policies

• Local Payment Initiation

• Centralised Netting

• Centralised Liquidity Mgt.

• Centralised Intra-Group Funding

• Centralised FX Mgt.

• Regional Cash Mgt. Structure

• Streamlined bank relationship and Bank Accounts

• Strategic Banking Relationship

Showing the complexity of the choice facing a full centralized Treasury

?


More Corporate Treasury issues : More Corporate Treasury issues : Centralizing ?Centralizing ?

Strategy & Coordination in ABX TreasuryStrategy & Coordination in ABX Treasury

STRATEGY & SERVICES SUPPLIER

CORPORATE TREASURY OFFICE

BALANCE SHEET MANAGEMENT

PROJECT MANAGEMENT

BENCHMARKINGTREASURY CASH MANAGEMENTSCORECARD

ACTIVITY BASEDCOSTING

IT / OUTSOURCING


Balance Sheet ManagementBalance Sheet Management

Weighted Average Cost of Capital - WACC &Weighted Average Cost of Capital - WACC &Capital StructureCapital Structure

The WACC is the weighted average of the cost of equity and the cost of debt based on the proportion of debt and The WACC is the weighted average of the cost of equity and the cost of debt based on the proportion of debt and equity within ABX capital structure. equity within ABX capital structure. The proportion of debt is represented by D/V, a ratio comparing the company's debt to the company's total value The proportion of debt is represented by D/V, a ratio comparing the company's debt to the company's total value (equity + debt). The proportion of equity is represented by E/V, a ratio comparing the company's equity to the (equity + debt). The proportion of equity is represented by E/V, a ratio comparing the company's equity to the company's total value (equity + debt). The WACC is represented by the following formula: company's total value (equity + debt). The WACC is represented by the following formula:

WACC = Re x E/V + Rd x (1 - corporate tax rate) x D/V.WACC = Re x E/V + Rd x (1 - corporate tax rate) x D/V.


More Corporate Treasury issues : More Corporate Treasury issues : Outsourcing Operations ?Outsourcing Operations ?

ABX Treasury contains certain areas eligible for ABX Treasury contains certain areas eligible for Outsourcing based on :Outsourcing based on :

Market perspective (Issues and Innovations)Market perspective (Issues and Innovations)

Criteria for Outsourcing (Typical Corporate Profile for Outsourcing)Criteria for Outsourcing (Typical Corporate Profile for Outsourcing)

Goals & Objectives (Why outsourcing, and for which Benefits ?)Goals & Objectives (Why outsourcing, and for which Benefits ?)

Implementation process (Our approach and the different steps)Implementation process (Our approach and the different steps)

ConclusionConclusion


More Corporate Treasury issues : More Corporate Treasury issues : Outsourcing Operations ?Outsourcing Operations ?

Strategies for Change : Market PerspectivesStrategies for Change : Market Perspectives

Issues and Innovations - Lean treasury organizationsIssues and Innovations - Lean treasury organizations Arguably, the most important and vexing challenge facing treasurers is getting the human resource equation right.

Centralize, reengineer and automate Centralize, reengineer and automate Those organizations which have been successful in their human resource allocation have centralized treasury activities, reengineered their processes and implemented automation tools to enable the most effective utilization of human resource.

Addressing credit and liquidity constraintsAddressing credit and liquidity constraints Liquidity and credit constraints have been a primary focus of many treasurers during the economic slowdown of the past 2 years

Effective cash flow forecastingEffective cash flow forecasting Companies that have implemented effective cash flow forecasting have found that they are able to manage their borrowing activities more effectively and plan liquidity needs more precisely.

Improving working capital management Improving working capital management


Outsourcing Profile Outsourcing Profile

Typical Corporate Profile for OutsourcingTypical Corporate Profile for Outsourcing

Partially Centralised or Decentralised structurePartially Centralised or Decentralised structure

Global operations in various countries/regionsGlobal operations in various countries/regions

Limited internal resources (Staff, Systems, procedures)Limited internal resources (Staff, Systems, procedures)

Subsidiaries with funding mismatchesSubsidiaries with funding mismatches

Interest in outsourcing your treasury administrationInterest in outsourcing your treasury administration

Wide open Corporate CultureWide open Corporate Culture

Guarantee of efficient and safe alternativesGuarantee of efficient and safe alternatives


Why Outsourcing ? Why Outsourcing ?

Why Considering Outsourcing Part of Corporate Treasury ?Why Considering Outsourcing Part of Corporate Treasury ?

Increase your ProductivityMinimise Administration BurdenAt a time of restructuring or streamlining your operationsSafe time to focus on core business activities

Maximise Internal ResourcesHeadcount – Office – Systems ExpenditureDuring any economic downturn or a bear market

Optimise Internal Treasury ProceduresTried and tested Control ProceduresExperienced Treasury StaffClear Segregation of duties


Outsourcing Benefits Outsourcing Benefits

What are the real Benefits ?What are the real Benefits ?

Allow Treasury to Concentrate on core business

Improve quality of services

Reduce Technology and Operational Risks

Improve the ratio Performance/Responsabilities

Achieve Cost Reductions

Lower Capital Investment

Optimise Internal Treasury Procedures

Increase flexibility

Lightening of the process activity


Project ManagementProject Management

What are the effects onWhat are the effects onManagement Reporting &Management Reporting &Internal Communication ?Internal Communication ?

Who is affected by the Who is affected by the conversion effects and what conversion effects and what are their training needs ?are their training needs ?

Technology ImprovementTechnology ImprovementHuman ResourcesHuman ResourcesTrainingTraining

Sub projects coordinationSub projects coordination

Impact on systemsImpact on systemsand processesand processes


Project ManagementProject Management

Keys of Success :Keys of Success :

The planning techniques we cover provide tools for establishing a measurable The planning techniques we cover provide tools for establishing a measurable business-relevant objective for each project. business-relevant objective for each project.

This This approachapproach allows us to measure success through the customer’s eyes. When allows us to measure success through the customer’s eyes. When complete, the it steers the entire project and, as importantly, it sets parameters for complete, the it steers the entire project and, as importantly, it sets parameters for the scope of the project and tells the sponsor and project manager what NOT to the scope of the project and tells the sponsor and project manager what NOT to do. ABX LOGISTICS approach is the foundation for developing a project plan that do. ABX LOGISTICS approach is the foundation for developing a project plan that consists of measured achievements, not activitiesconsists of measured achievements, not activities

Effective portfolio management with control of resourcesEffective portfolio management with control of resources


More Corporate Treasury issues More Corporate Treasury issues Embracing New Treasury PrinciplesEmbracing New Treasury Principles

Our challenges…Our challenges…• Make a cash flow analysis of our agencies worldwideMake a cash flow analysis of our agencies worldwide

Set up an Optimal structure and services arrangementsSet up an Optimal structure and services arrangements

Integrating treasury operations to gain efficienciesIntegrating treasury operations to gain efficiencies

Integrating treasury information flows with business operations & ERP systemsIntegrating treasury information flows with business operations & ERP systems

……In Order to Increase Efficiency & ControlIn Order to Increase Efficiency & Control

Consistent procedures, and specialist defined skillsConsistent procedures, and specialist defined skills

Less errors and time savingsLess errors and time savings

Better audit and securityBetter audit and security

Improvement of TechnologyImprovement of Technology•

•


More Corporate Treasury issues ABX More Corporate Treasury issues ABX Corporate GovernanceCorporate Governance

The essence of corporate governanceThe essence of corporate governance(A concept paper for discussion and comment)(A concept paper for discussion and comment)

The essential components of ABX organisation’s corporate governance arrangements are

CommunicationDisclosure

Accountability

Parties

Best Practice Principles

Culture & Values

Tools

Organisation Specific Integrated Governance Framework

Clear Objectives & Responsibilities

Clear Direction & Control

Fully informed Governing Body with Correct Focus

Optimised Performance

Satisfied Shareholders & Stakeholders

GOOD CORPORATE PERFORMANCE


QuestionsQuestions

Questions ?Questions ?

Thank you very much.Thank you very much.

Yvo VercouterenCorporate Treasurer

Tel. +32.47.8888.55.8Mail :

[email protected]

15 october 2003 15:00 treasury tools for balance sheet management at abx logistics jean-claude...

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