"comprehensive approach to global liquidity management" webinar slides

Comprehensive Approach to Global Liquidity Management

July 20th, 2016

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Today’s presenters

Priscila Nagalli, CFA, CTPManager, Capital Markets

Greg Person, CTPVice President, Global Presales


Corporate liquidity

Three-pronged approach– Working Capital– Intercompany– External Financing

Case Study

Conclusion

Agenda


Do I have visibility to my corporate liquidity, and can I access it?

Do my global subsidiaries have the liquidity they need to be successful?

Do I have confidence in my global cash forecast?

Do I have the right banking partners to provide liquidity for my global regions?

Do I have the available liquidity necessary to fund major capital or corporate expense?

Do I have the technology infrastructure to support the business and balance my employees’ time?

How do I answer….


Investment returns versus available liquidity

– Preservation of capital vs. higher yielding investments

– Rate of return vs. cost of capital

– Cash on my balance sheet vs. shareholder activism

Ensuring adequate liquidity to fund corporate investment strategies and global business units

– Optimal liquidity at appropriate level of risk and cost

– Executing corporate capital allocation strategy; share buyback, M&A, debt pay-down

Corporate liquidity balance


Three-pronged approach to treasury liquidity

Intercompany

External Financing

Working Capital

Mobilizing intercompany cash to enhance global liquidity and positively impact P&L

Working capital strategies to reduce the cash conversion cycle

Utilizing bank partners to provide liquidity resources in strategic markets


Working capital optimization approach

Pay Suppliers with Cash -

DPO

Sell Acquired Inventory for AR -

DIO

Collect on Accounts

Receivable -DSO

Reduce the Cash Conversion Cycle

Time cash is tied up in working capital

Reduce DSO

Extend DPO

Optimize inventory balance

Cross functional strategic initiatives

Demonstrate liquidity and P&L benefits

AP, AR, manufacturing and procurement effort

Involve your banks and technology partners


Regional liquidity constraints due to US/OUS cash allocation

Achieving operating cash flow targets

Large companies generally have stronger credit ratings and excellent access to credit when compared to their suppliers

Suppliers generally fund themselves via expensive working capital solutions with higher funding costs

Suppliers often encounter issue of late payments which places major strain on their cash flow

Factors driving supply chain finance programs


Payable financing steps

1. Supplier requests early payment from buyer invoice

2. Bank pays supplier early at discount

3. On due date of invoice buyer pays the bank full value of invoice

A win-win-win for supplier, buyer and bank


Workflow: payable financing example

Day 10 – approved invoice

Buyer Supplier

Day 10 – bank pays discounted 3% APR invoice of $99,583

Scenario: Buyer receives $100,000 invoice from supplier with extended 60-day payment terms

Technology Solutionand Bank Partner

Day 60 – debit original invoice amount of $100,000


Intercompany liquidity considerations

Low cost liquidity source

Internal cash is cheapest form of finance

Automation through bank pooling structures

Global deployment involving global entities, currencies and multiple bank relationships

Initial investment and due diligence

Collaboration with treasury, tax, local finance and legal

Loan documentation and arm’s length terms (reg 385)

Optimization through automated bank pooling

Technology investment and transparency


Address Kyriba Singapore liquidity deficit with Kyriba Canada surplus

Reduce SGD external expense, achieve higher consolidated investment balance

In-house bank liquidity example

Kyriba BV(IHB Entity)

Kyriba Canada

Kyriba Singapore

External Bank

External Bank

Deposits USD 50M

Sell USD 10M

Buy SGD 15M

Invests USD 40M

Borrows SGD15M

(USD 10M)


External Financing

Higher cost, more options

Line of credit

Bank loans / Structured financing

Factoring

Repo

CP issuance

Bond issuance

Others: Asset Back Securitization/ AB Warehouse Loan


External Financing in a nutshell

Line of credit

• Safeguard for possible future needs, established with one or more banks, fees associated to commitment

• Duration: All

• Risk: Committed vs Uncommitted

• Complexity: Low

• Cost: Medium

Bank Loans /

Structured

Financing

• Highly customizable, depend on bank and company needs, may involve collateral and syndication

• Duration: All

• Risk: Low

• Complexity: Medium- High

• Cost: Medium

Factoring

• Sales of receivables to a bank or factoring company, similar structures offered on supply chain finance

• Duration: Short term

• Risk: Low

• Complexity: Medium

• Cost: Medium


External Financing in a nutshell

Repo

• Sale of a financial asset with the commitment of repurchase, borrower holds a liquid asset in FI portfolio, widely used by investment firms

• Duration: Short term

• Risk: Low

• Complexity: Medium

• Cost: Low

CP

Issuance

• Financing of short term liquidity gaps. Discount, borrower to establish issuing and paying agent to support process, monitoring of rating and liquidity

• Duration: short term

• Risk: Ability to roll

• Complexity: Medium – High

• Cost: Low rate, medium for maintenance and operations

Bond

Issuance

• Financing of long term cash needs. Interest paid along the life, supported by banks, tracking of interest, accruals, etc. monitoring of rating and liquidity

• Duration: long term

• Risk: Higher interest rate (mitigated by derivatives)

• Complexity: Medium – High

• Cost: Low rate, medium for maintenance and operations


Considerations on borrowing

Stop! Gather all the information, analyze and negotiate!

Duration

Risk profile

Operational capability

Disclosures, compliance, covenants

Regulation and credit rating – liquidity needs

Market environment and interest rate curve


Case study: Electronics manufacturing company

Headquarters in US, with regional centers across the globe

Intercompany loans to entities in need and invoice netting

Little cash visibility, no global cash forecasting, limited operational capacity and timeframe for debt issuance

M&A (“one off”) on horizon, need to raise cash and repay in medium term

1. reached out to subsidiaries to identify cash needs, potential for repatriation based on local forecasts

2. analysis for reduction of cash conversion cycle

3. negotiated loan with banks, syndication, no collateral, repayment in 5 years, libor + spread


Conclusion

Cash Forecasting and Working Capital

analysis as starting point

Intercompany, when possible,

is the less expensive form of financing

Working Capital is often not prioritized by treasurers, but there are affordable and easy ways to optimize cash

External financing provides a large array of options but requires deeper analysis for the optimal strategy


Further Reading

Special report from T&R: Shining a Light on Receivables. Optimizing Liquidity.Download at: http://kyri.ba/TRLiquidityReport

Survey report from ACT: Prioritizing Technology to Support the Treasurer’s Expanding Role and the ChallengesDownload at: http://kyri.ba/ACT2016survey

http://kyri.ba/TRLiquidityReport

http://kyri.ba/ACT2016survey

Questions?

Greg Person

[email protected] Nagalli, CFA, CTP

[email protected]

mailto:[email protected]

mailto:[email protected]


Thank You For Attending

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