citi fpf 2012 - · pdf file · 2012-08-22key finance practitioners are engaged in...

The Financial Professionals Forum 2012

Citi FPF 2012James Mahn, TMT Sector Head North America, Citi

Gabriel Kirestian, TMT Sector Head Latin America, Citi

1


Table of Contents

State of the Industry 1

Trends 4

Ecosystem Approach 7

Things to Look at 1

4

State of the Industry



Key finance practitioners are engaged in supporting their company’s commercial model

evolution in what is an increasingly dynamic industry, coalescing around mobility, cloud and

integrated service themes.

Treasurers and finance directors are focused on capital/operating expenditure, financing,

supply chain stability/liquidity, market risk and working capital management.

Competitive pressures and business model upheavals are prompting continuous

revalidation of roles and sales models, and the role of the pre-eminent institutional financial

risk manager has never been more prominent.

2



Technology Innovation

Digitization: Drive to convert from

paper to electronic solutions

continues. Emergence of digital

wallets replacing physical currency

for convenience

Mobility: Opportunities for mobile

and kiosk payments, virtual

accounts, electronic receivables

services. Banks must answer the

call for high-speed, customizable,

innovative solutions

Globalization: Growth and

economic decoupling of emerging

markets; global companies are

going local and local companies are

going global

Urbanization: Today, 50% of the

world’s population live in cities—a

figure that will grow to 75% by

2050. Population growth will

require infrastructure investment

and fiscal constraints in developed

markets will require efficient

administration

New financial regulations are

changing the way we do business

– Basel II and III: Tighter international

capital and liquidity requirements

– Dodd-Frank Financial Reform:

Repeal of Reg Q, unlimited FDIC

insurance

– Durbin Amendment: Debit card

interchange fee restrictions

Regulatory Reform

Globalization

3

Trends


Trends

• Social Media

• Cloud Computing

• Software as a Service

• eCommerce

• Big Data

• Subscription based content

• Pay Walls

• Micropayments

• Mobile Content

• M-commerce

• Mobile Financial Services

• Media distribution

• Number portability

• Electronic Top Up and Wallet

Technology

Media

Telecom

• Convergence

• Consolidation

• M&A

• Competition

• Distribution

• Mobile

Overall TMT Trends

4


Volatility in External Environment

Market Regulatory Technology

Currencies

Tax rates

Interest rates

Eurozone debt crisis

Rising inflation in Asia

Bank capital adequacy

Tight liquidity worldwide

Commodity price fluctuation

Capital account controls

Tax laws (CFC, TP, PE, VAT)

Interest rates

Currency convertibility

Reporting requirements

China’s RMB policies

Basel III

Technology

Clearing Infrastructure

Limitations on data transfers & instructions

Paper vs. Electronic

ERP & TMS

Bank Systems

ERP & TMS

LegendRecent

Development

Recent market developments, changes in regulatory environment, and increasing adoption of technology have brought

increasing limelight on to the treasurer’s role

5


Considerations for Unlocking Value in the Supply Chain

Treasury should engage with Working Capital Management designers and stakeholders to manage identified

mismatches in currency and liquidity exposures inherent in the supply chain, support partners experiencing financial

stress and ensuring Treasury processes are efficient and effective versus the underlying business operations.

Treasury Impact

Sub-optimal Treasury

Liquidity and Risk

Management processes not

aligned to current Regulatory

and Tax environment

Inherent structural risks or risk

set off opportunities within

supply chain not identified and

managed

Suppliers, distributors and

customers experiencing

financial pressures pose

disruption threat to supply

chain and future liquidity

Changing Environment

Geo Political disruption to Supply

Chain (Japan, Thailand)

Globalization and digitization of

supply chain –sources of inputs

through to end consumer of

product

Vendors and distributors critical

to the success of the supply chain

may be experiencing financial

pressures

Regulations and Tax – (Priority 1)

Evolving Trading Models (e.g. 3rd

Party distributors) within which

supply chain operates

Treasury Priorities

Evaluate As Is and Future state Supply Chain in

partnership with Tax and Legal Departments.

Identify current and future Jurisdiction analysis

requirements and consequently evaluate alternate

Treasury and WCM opportunities afforded to gain

efficiency and effectiveness for a Liquidity, Risk

Management and WCM processing perspective.

Provide solutions to preserve supply chain

integrity.

Provide tools and techniques to evaluate

creditworthiness and provide financial support to

critical stakeholders in the supply chain, e.g.,

suppliers, contract manufacturers, logistics

providers, distributors

Citi’s View of the Preliminary Considerations for Supply Chain

Added complexity from managing a physical and virtual supply chain in parallel

Network infrastructure, services, and equipment components of the physical supply chain

Management of multi-level distributors in parallel with a direct distribution model for the prepaid airtime supply chain

Increasing reliance on Asian suppliers for both device and infrastructure components6

Ecosystem Approach


Ecosystem Approach

The Ecosystem approach allows us to identify the treasury stress points that reside not only close to the

company operation but also at the periphery of the ecosystem, as well as the impact of those stress

points in the treasury decision process

Stress points can take many forms: corporate credit risk, concentration risk, counterparty risk, cross

border risk, or even a specific geography that creates a hazard in the ecosystem

The approach consists of an analysis of the ecosystem participants and the most common flows among

them, allowing a deeper view on those relationships

It also enables a systemic analysis of the current and desired position in such ecosystem in terms of

volumes, risk, flows and relationships

That analysis goes beyond treasury processes, into commercial, marketing, procurement and other

areas, supporting the role of the Treasury Center as provider of services company wide

With a pure treasury view, it helps understanding how to minimizes external transaction volumes, reduce

banking fees and processing costs, as well as aggregate cash for most efficient use by the enterprise,

optimizing use of external credit lines and commercial terms

7


Example: Consumer Electronics Ecosystem

ODMs / IP

Owners /

Manufacturers

(―Brands‖)

Software

Ecosystem

Owners

Major Interactions

Semiconductors

Power

Displays / Optical

Raw Materials

Memory

Distribution

Storage

Network Services

EMS /

Contract

Manufacturers

/ Assembly

Services

Servicing

Outsourcing

Marketing

ConsultingInsurers

Tax Authorities Tax Authorities

Outsourcing Labor Mgmt

Sony

Samsung

Apple

Panasonic

HP

LG

Toshiba

Microsoft

Dell

Compal

Pegatron

Wistron

Sanmina SCI

Content Owners

Hon Hai / Foxconn

Jabil

Flextronics

Quanta

Content Hosting

Marketing

Legal

Publisher Payments

Advertisers/

Advertising Networks

Apple

Google

Microsoft

RIM

Tax and

Regulatory

8


Example: Consumer Electronics Ecosystem

● America Movil S.A.B. de C.V. (A-)

● AT&T, Inc. (A-)

● BCE, Inc. (BBB+)

● Ericsson (BBB+)

● MetroPCS Communications, Inc. (B+)

● Telefonica, S.A. (BBB+)

● Verizon Communications Inc. (A-)

● Vodafone Group plc (A-)

● Best Buy Co. Inc. (BBB-)

● Costco Wholesale Corporation (A+)

● Wal-Mart Stores Inc. (AA)

● AV Concept Holdings Ltd. (NR)

● Ban Leong Technologies Ltd. (NR)

● Belgacom SA (A)

● Brightpoint (NR)

● CDC SpA (NR)

● Cellcom Israel Ltd. (NR)

Carriers

Retailers

Distributors

● Austriamicrosystems AG (NR)

● Marvell Technology Group Ltd. (NR)

● Wolfson Microelectronics plc (NR)

● Samsung SDI Co. Ltd. (NR)

● Walt Disney Co. (A)

● Samsung Electro-Mechanics Co. Ltd. (NR)

● CSR plc (NR)

● Infineon Technologies AG (NR)

● Micrel Inc. (NR)

● QUALCOMM Incorporated (NR)

● SanDisk Corp. (BB)

● Semtech Corp. (NR)

● Skyworks Solutions Inc. (NR)

● TriQuint Semiconductor, Inc. (NR)

Battery

Display Drivers

PCBs, MLCC

Semis

Analog ICS

App Process for Smartphones

Audio ICs

Arrows indicate

direction of revenue

flow

Suppliers by Sub-Product

Customers by

Relationship Type● America Movil S.A.B. de C.V. (A-)

● AT&T, Inc. (A-)

● BCE, Inc. (BBB+)

● Ericsson (BBB+)

● MetroPCS Communications, Inc. (B+)

● Telefonica, S.A. (BBB+)

● Verizon Communications Inc. (A-)

● Vodafone Group plc (A-)

● Best Buy Co. Inc. (BBB-)

● Costco Wholesale Corporation (A+)

● Wal-Mart Stores Inc. (AA)

● AV Concept Holdings Ltd. (NR)

● Ban Leong Technologies Ltd. (NR)

● Belgacom SA (A)

● Brightpoint (NR)

● CDC SpA (NR)

● Cellcom Israel Ltd. (NR)

Carriers

Retailers

Distributors







● CSR plc (NR)








Battery

Display Drivers

PCBs, MLCC

Semis

Analog ICS


Audio ICs







● CSR plc (NR)








Battery

Display Drivers

PCBs, MLCC

Semis

Analog ICS


Audio ICs







● CSR plc (NR)








Battery

Display Drivers

PCBs, MLCC

Semis

Analog ICS


Audio ICs







● CSR plc (NR)








Battery

Display Drivers

PCBs, MLCC

Semis

Analog ICS


Audio ICs







● CSR plc (NR)








Battery

Display Drivers

PCBs, MLCC

Semis

Analog ICS


Audio ICs







● CSR plc (NR)








Battery

Display Drivers

PCBs, MLCC

Semis

Analog ICS


Audio ICs

Source: Company filings, CapitalIQ. Note: This list is not exhaustive, and percentage relationship may be approximate in some cases.

Telecom, 25%

Media & Appliance, 34%

Semiconductor, 23%

TFT-LCD, 18%

Product Breakdown

Europe, 23%

America, 28%

Korea, 17%

Asia, 16%

China, 16%

Geographic Breakdown

Large

Consumer

Electronics

Company

(S&P Rating: A)● AV Concept Holdings Ltd. (NR, Asia)

● Ban Leong Technologies Ltd. (NR, Asia)

● Belgacom SA (A, CEEMEA)

● Brightpoint (NR, Latam)

● CDC SpA (NR, CEEMEA)

● Cellcom Israel Ltd. (NR, CEEMEA)

Distributors

9


Example: Telecommunications Ecosystem

10


Telecommunications Ecosystem Challenges

11


Telecommunications Ecosystem Solutions

12


Ecosystem Analysis Results

Key Challenges for TMT Companies in Latin America

A/R Matching

Unbanked or underbanked ecosystem participants

Gain efficiencies in a low margin market: Standardization and Centralization of functions

Public sector payments and collections to/from municipalities and governments

Need for increased control and visibility over T&E expenses

Need to improve working capital ratios

Liquidity Management in a changing regulatory environment

Marketing

– Payments to land owners in remote areas, e.g. billboards

– Sales force petty cash for marketing efforts in remote areas

Sales

– Promotions and Rebates for Consumers

– Incentives for Sales Force

– Refunds

13

Things to Look at


Things to look at

The Ecosystem approach allows treasurers and CFOs to identify

opportunities and challenges through a systemic view.

• Multiple new flow channels (on line, mobile, private settlement networks) with

unique information and processing challenges

• Innovative solutions for commercial and marketing processes (i.e. pre-paid cards)

• Re-visited approach for counterparty risk assessment based on new ways to link

with other ecosystem participants

• Systemic approach for standardization and centralization of tasks, allowing to

implement overall management processes on every specific ecosystem flow

14


Supply Chain Finance

Interview with Vodafone Treasurer, Neil Garrod

Issues

To increase operational efficiency and extract

economic value from its supply chain, Vodafone

established two centralised service and

procurement centres in Europe. With the

establishment of these new processing centres,

Vodafone was seeking a supply chain finance

programme that would leverage these platforms

while providing economic value to Vodafone and

its suppliers.

Solution

Citi and Vodafone implemented a supply chain

finance programme that leveraged Vodafone’s

existing processing centres and enabled

Vodafone and it’s suppliers to maximise working

capital while mitigating risk. Citi’s technology

platform was easily integrated into that of

Vodafone and Vodafone’s suppliers. Citi’s

programme enabled Vodafone to leverage its

existing connectivity such that a single file could

be submitted to Citi for both regular and

discounted supplier payments. To ensure that the

programme was quickly adapted by Vodafone’s

suppliers, Citi and Vodafone conducted several

workshops, co-presented at supplier forums, and

met with individual suppliers to ensure the on

boarding process was both straightforward and

convenient.

Citi’s Role

Through Citi’s recommended supply chain finance structure, Citi was able to demonstrate compelling economic value add – both in the form of working capital improvements to Vodafone and its suppliers.

Adam Smith: Vodafone

Winner working capital management/financial supply chainSystem

Financing

15

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Centralized Global Payment and Receivables

By consolidating its bank relationship across 93 countries to just three core banks, Thomson Reuters (TR) has improved efficiency, reduced

costs and deepened its relationships with its chosen banks.

Issues

In April 2008, Thomson acquired Reuters

creating a large global organisation with

multiple banks in many regions. Following the

unification of its structure in September 2009,

the new entity wished to consolidate its banking

relationships across 93 countries for its

accounts receivables and payables, treasury

services and liquidity overlay.

Solution

Thomson Reuters (TR) teamed up with Citi to

build a single bank-independent outbound and

inbound payables data file in all countries

where TR banks. Through this process

improvement TR has facilitated standardisation

reducing manual payments (or outsourcing of

manual payments to banking partners) and

automated previously manual processes,

helping to improve efficiency and reduce costs.

The use of XML also makes it easier for

Thomson Reuters to change banks in the future

should they wish to.

Citi’s Role

Thomson Reuters now has a single point of

contact and can template how engagement

with its banks occurs, making query initiation

and resolution more straightforward. In

centralising bank administration, the company

has created a streamlined process and

ensured compliance with global treasury policy

and Sarbanes-Oxley controls.

Adam Smith:

Thomson Reuters

Winner payables and/or receivables solutions

16


Commercial Cards Solution

Ericsson is present in 175 countries, worked with Citi to implement a global T&E card programme to lower costs, simplify processes relating to

cards and enhance its benefits.

Issues

Ericsson used 60 credit card providers

across many of its 175 countries globally for

its T&E requirements. In 2009, the company

began an assessment of its credit card needs

and arrangements and determined that it

needed to increase consistency in its use of

credit cards in order to improve its visibility

and control of spending.

Solution

During the first quarter of 2010, Ericsson

selected Citi as its credit card provider

globally having decided that working with a

single provider would deliver maximum

benefits to the company. This simplification

made it possible for Ericsson to track T&E

costs and trends and enabled the

implementation of strategies to improve card

compliance and reduce out of pocket spend..

Citi’s Role

The speed of Ericsson’s Citi T&E card

programme implementation is

unprecedented given its scale. A total of

40,000 cards have been issued in 33

countries in Asia, Latin America, North

America, Europe and Africa and 10

additional countries are in the pipeline.

Adam Smith: Ericsson

Winner Best Card Solution

17


Refer-a-Friend Promotion

Sprint boasts the most lucrative referral rewards programme among national carriers.

Issues

Sprint was faced with a highly competitive

wireless environment that relied heavily upon

rebates and price discounting to drive new

customer acquisition. Sprint identified referral

programmes as the key to boosting new customer

acquisition. In addition Sprint was seeking a

means for maintaining loyalty within their

consumer base.

Solution

Citi Prepaid created a robust rollout plan that was

aimed at replacing service credits with branded

Visa® prepaid cards. Sprint had been relying on

service credits as a means for rewarding

customers for referrals — a tactic that garnered

limited customer participation, low visibility to

programme metrics, and was widely unnoticed

and quickly forgotten by participants. Sprint

completely replaced service credits with prepaid

cards, a tactic that reenergised the referral

programme and drove significant above- and

below-the-line economics.

Citi’s Role

The Sprint Referral Rewards Programme

provided by Citi Prepaid is the most successful

programme in Sprint’s history in terms of

customer acquisition and loyalty. Since

programme launch, over one million new

customers have been added to Sprint’s base

and customer satisfaction ranks at over 90%. In

addition, fulfilment costs have been reduced by

10% and the company has enjoyed an

additional revenue stream through spend back

on supplementary Sprint products and services.

18


19

efficiency, renewable energy & mitigation

In January 2007, Citi released a Climate Change Position Statement, the first US financial institution to do so. As a sustainability leader in the financial sector, Citi has taken concrete steps to address this important

issue of climate change by: (a) targeting $50 billion over 10 years to address global climate change: includes significant increases in investment and financing of alternative energy, clean technology, and other carbon-

emission reduction activities; (b) committing to reduce GHG emissions of all Citi owned and leased properties around the world by 10% by 2011; (c) purchasing more than 52,000 MWh of green (carbon neutral) power

for our operations in 2006; (d) creating Sustainable Development Investments (SDI) that makes private equity investments in renewable energy and clean technologies; (e) providing lending and investing services to

clients for renewable energy development and projects; (f) producing equity research related to climate issues that helps to inform investors on risks and opportunities associated with the issue; and (g) engaging with

a broad range of stakeholders on the issue of climate change to help advance understanding and solutions.

Citi works with its clients in greenhouse gas intensive industries to evaluate emerging risks from climate change and, where appropriate, to mitigate those risks.

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citi fpf 2012 - · pdf file · 2012-08-22key finance practitioners are engaged in...

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