the cfo and treasury: aligned for organizational transformation and growth

October 29, 2014

The CFO and Treasury: Aligned for Organizational Transformation and Growth

© 2014 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 2

Today’s speakers

Phillip MattesTreasury Strategist, Kyriba

Phil provides clients with consulting and advice on all aspects of treasury system projects. He has over 18 years of consulting and corporate experience in treasury. He began his treasury career as a treasury analyst at the global oilfield services firm, Schlumberger.

He then spent more than eight years with the corporate treasury consulting practice of PricewaterhouseCoopers. He later joined CareerBuilder in Chicago as the director of treasury. Prior to his current position with Kyriba, Phil was the global director of treasury for Groupon, where he established its treasury function.

Russell HoffmanDirector - Market and Treasury Risk, KPMG LLP

Russell is a Director in KPMG’s Market and Treasury Risk Management division, with over 15 years of extensive treasury, financial instrument and risk management experience in the corporate treasury and financial services industry.

Russell works on numerous treasury advisory projects focused on organizational structures, governance and controls, back office operations, technology and regulatory aspects. Russell serves many of KPMG’s largest Fortune 500 and private multinational audit and advisory clients.

Current CFO initiatives and their association with Treasury

© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 302339

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The economic outlook

U.S. Fiscal D

eficit

Bankruptcies

Plunging commodity

prices

Housing markets remain under pressure

Uncertain financial markets

in many investment

sectors

Tightness of credit and liquidity

Global recession and negative outlook

Volatile FX markets


5

CEOs Setting the Course for Growth

KPMG's CEO Study "Setting the Course for Growth: CEO Perspectives" gathered 400 U.S. CEOs viewpoints on the most critical business issues the next three years and over the longer-term.

Key Themes

Growth• 50% of respondents characterize their

overall growth strategy as aggressive • 72% say that the focus on growth is more

important than a focus on operational efficiencies

• The top growth strategies are geographic expansion and organic growth

Transformation• 67% of CEOs said that their companies are

at some stage of transforming or having just transformed their operating models

Regulation• Regulatory environment is the top issue that

can have the most impact on a company • Second most critical challenge that CEOs

expect to face over the next three years (after geographical expansion)

Risk Management • Second-highest concern about the company

following financial performance • Risk planning is proactively discussed on a

regular basis at just 27 percent of organizations


6

Issues impacting the CFO’s agenda…and Treasury

More challenging credit and business environment, investor concerns

• Greater M&A activity resulting in finance reorganization and integration

• Transform organizational structure

• Leverage technology / data analytics

• Optimize available resources

• Rigorous cost management

• Arrange lowest cost of funding

• Improve working capital management

· Achieve operational efficiency

· Continued identification and monitoring of risk (FX, commodity, interest rate)

· Identify new risks i.e., Cyber security

• Greater regulatory compliance (Basel III, Dodd-Frank, FACTA, FBAR,SEPA)

• Understand and react to impact

• Establish performance indicators

Governance Risk & Controls

Cash EfficiencyGlobalization Regulatory &

Market Changes


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The Increasing importance of the treasurerMoving up the organization pyramid – partnering with the CFO

Strategic planning Data analytics Treasury support to corporate leadership Learning and development

1.Treasury becomes more strategic in focus

Leveraged services Highly efficient, standardized, automated transaction

processing Integrated information technology framework

2.Better alignment with the broader strategic finance transformation

Centralized treasury Segregation of duties Specialized treasury expertise Leading practice sharing

3.Aligns with leading value added treasury organizations

Drivers for Change

Strategic

Analytical

Executional

The Treasurer’s role has become more strategic in nature and is more closely aligned with the CFO. Today’s challenging environment forces treasurers to focus on their core processes and to remain relevant to the entire organization.


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The CFO agenda - GlobalizationTransforming treasury – greater integration with finance

Topic Category Impact Challenge/opportunity

Treasury Transformation

Organization Technology Process & Control Market Risk Management

Opportunity – Performing a treasury transformation will align Treasury and Cash Management process with a Company’s broader Finance and operational efforts resulting in:

■ Improved operational and financial decision making and control

■ Leveraged resources to maximize efficiencies and minimize cost

■ High level of scale, control, and standardization

■ Flexibility to evolve as business requirements evolve

■ Reduced risk

Centralization of Treasury

Organization Opportunity – Centralizing treasury functions in order to utilize a Center of Excellence and/or Shared Service Centers helps Treasury gain efficiencies and enhance control.


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The CFO agenda - globalization Shared services and outsourcing are key transformation enablers

…but the value proposition extends well beyond cost reduction

Administrative savings

■ Economy of scale – consolidation, skill mix, productivity■ Economy of place – labor arbitrage, labor availability

Process and service excellence

Transformational impact

Business focus

Flexibility

Compliance and control

■ Simplification, standardization and best practice deployment■ Continuous improvement and service quality management■ Customer satisfaction and demand management

■ Automation, self-service, digitization■ Aggregation/reduction of 3rd party spend; cash management■ Data and information management; analytics

■ BU focus on business specific activity: Revenue generation and production■ SSC focus on leveraging expertise across back-office

■ Adaptive to changes in the business model■ Ease of integrating acquisitions; cost variability

■ Improved process documentation, visibility and data integrity■ Simplified compliance monitoring, reporting and transparency■ Business continuity and disaster recovery planning


The CFO agenda - globalization Treasury technology

• Visibility• Productivity• Disparate processes• Audit risk

Protocols and Networks - SWIFT, EBICs, other regional banking networksFormats – EDI, SWIFT, etc.

Globalization

Trea

sure

r

CFO

Multi language / Multi currencies

Financial systems (ERP); 3rd party market data providers

Global Connectivity

Localization

Integration

Centralization Services Payment factories; In-house banking


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Generate improved free cash flow

Robust cash forecasting, controlling and monitoring

Working capital and cash flow culture

Benefits realized

Reduce net debt

Improved DCF-based

valuation

Minimization of new monies

required

Enhanced visibility and

reliability

Increased stakeholder confidence

Tactical skills

Cash forecasting

Receivables PayablesTreasury

managementInventory

managementControlling

Organizational capability

Board level sponsorship

Communication and buy-in

Training and coaching

Contingency mindset

Reward structure

To realize opportunities to generate cash, it is important to have the relevant organizational skills and tactical ability in place

The CFO agenda – cash efficiency Realization of cash generating opportunities requires a cash flow culture


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The CFO agenda – Cash Efficiency Bank account rationalization

■ Significant administrative cost savings

■ Improved cash visibility and cash availability, resulting in reduced borrowing costs and/or higher overnight investment earnings

■ Reduced number of bank accounts with corresponding reduction in direct monthly banking charges, including fees for redundant services associated with these accounts such as positive pay

■ More efficient cash concentration/ZBA processes, with a corresponding reduction in itemized fees due to fewer transfer/sweep transactions

■ Reduced number of bank accounts reduces fraud risks, with reduction in less active/less monitored accounts

■ Reduced in ongoing account documentation costs (e.g., maintenance of authorized account signatories)

■ Potential reduction in number of banking partners

Financial Benefits

■ Increased control (centralization) over a cash flows improves strategic decision making and enhances ability to rapidly deploy funds where needed

■ Better visibility and control of cash improves the accuracy of the cash forecasting process

■ Potential to identify additional process improvements in daily Treasury Management System (TMS) processes

Other Benefits


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The CFO agenda – Cash Efficiency SWIFT Connectivity

SWIFT Net allows corporations to connect and exchange financial information securely and reliably.

SWIFT is solely a carrier of messages. It does not hold funds nor does it manage accounts on behalf of customers, nor does it store financial information on an on-going basis. As a data carrier, SWIFT transports messages between two financial institutions. This activity involves the secure exchange of proprietary data while ensuring its confidentiality and integrity

Consistent data

■ Robust information providing rich details about the transactions

■ Receive information more efficiently

■ Providing visibility into transactions more expeditiously

■ Support improved liquidity management and intra-day reconciliation

Better information

■ Standardized information directly from account holding bank (or via your aggregator)

■ Centralized reporting – 24/7

■ Multi bank relationship management

■ Improved efficiencies and STP

Benefits


The CFO agenda – cash efficiency Treasury technology

• Inefficient investing and borrowing

Liquidity management; cash forecasting with historical scoring

Cash Efficiency

Trea

sure

r

CFO

Centralizing 3rd party payments; supply chain financing

To support information sharing and insight into cash movement (i.e. AR & AP)

Cash Management & Cash Forecasting

Payments

Integration

Funding and Investing Track and manage funding and investing instruments


15

The CFO agenda – governance risk and controlsTreasury governance processes

Treasury

Board and

Senior Executive

Team

Business Units

Governance Are roles, responsibilities and accountabilities clear around the management

of cash and risk generated by the strategic business process? Do you operate a three lines of defense model? Is cash and risk management uniformly embedded in your organization? Do you have an effective organization structure for the management of cash

and risk? Is your cash and risk management culture what you want it to be? Reporting and Data

Is cash and risk data coming from multiple sources to provide a true picture?

Are users of cash and risk management information inundated with reports, dashboards and information making effective decision making difficult?

Are there redundant cash and risk management reports?

Do you lack confidence in your decisions because of poor data quality?

Is risk reporting timely?

Processes and Systems Do you experience duplicative processes in your operations? Do you have process inefficiencies caused by systems that

don’t interface? Are cash and risk management practices embedded in your

business as usual processes? Are the systems and processes both forward and historical

looking?


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Risk / return-based

performance evaluation

Risk return-based decision making

Risk limits and monitoring

Delegations of authority

Risk appetite

• Include returns, relative to risks, taken by business units• Ensures appropriate incentives given to business unit

leaders

• Approach to make decisions based on return, given risk• Allows for common, objective lens through which to

decide

• Lays out maximum risks by type and group/department• Reporting on cross-functional and key risks

• Lays out who (by name) makes what types and magnitudes of decisions

• Spells out escalation approach

• Defined by Board and senior management• Lays out the types of risks and magnitude of risks (and

corresponding returns) the company is willing to take

The CFO agenda – Governance Risk & Controls Risk governance practices


The CFO agenda – governance risk and controls Treasury Technology

• Audit risk• Fraud• Higher costs

Segregation of duties; approvals and notifications; configurable process templates

Governance risk and controls Tr

easu

rer

CFO

On everything; historical; reporting

Data at rest and in motion; passwords; digital signatures; SOC 1 / SOC 2; Dual factor authentication

Workflow

Audit trails

Security

Bank Relationship Management

Bank account management; signatories; fee analysis; workflow based bank change management processes


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Regulation Impact to Corporates

FAS157 / IFRS 7FAS133 / IFRS 9

FAS 157/133 / IFRS 13

Generate valuations for derivative financial instrumentsDevelop new framework to account for derivative transactionsIncorporate credit risk in all valuations

Sarbanes-Oxley 302 / 404 (US)

CFO needs to attest to audit and controls existence- Treasury must prove they exist internally- CFO must formally agree they exist externally

EMIR (Europe)Dodd-Frank (US)

Tracking of net new information, including unique transaction identifiers (including by business unit)Reporting of all derivative transactions to central trade repositoriesCentral clearing of derivatives (proposed)

SEPA (Europe)

Bank Accounts – switch to IBANsOutgoing Payments – switch to new SEPA SCT formatsDirect Debits – switch to new SEPA SDD formatsDirect Debits – refresh mandates w/ customer and bank

The CFO agenda – regulatory and market changes


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Regulation Impact to Corporates

FBAR (US)

For American companies and residents

Must track all foreign accounts + signatories + max balance of account in prior 12 months

Reporting by corporates and on personal tax reporting

Specific forms (fun!) for both corporates and personal

BASEL III

Direct impact to corporates = nothingIndirect impact is significant-Increased borrowing costs (banks less likely to lend)-Increased hedging costs (higher premiums offered)-Emphasis on non-balance sheet lending (e.g. SCF)-Push towards internal financing (netting & IHB)

FTT (Europe)Must calculate and pay significant taxes on borrowing and derivative transactionsIncreased costs to borrow and hedge

The CFO agenda – regulatory and market changes


The CFO agenda – regulatory and market changesTreasury Technology

• Reporting and timing • Rapid new and changing

regulatory changes – software not updated

Greater regulatory compliance (Basel III, Dodd-Frank, FACTA, FBAR, SEPA, EMIR)

Regulatory and market changes Tr

easu

rer

CFO

Key performance indicators; historical and predictive analysis; data integration

Updated frequently with new compliance capabilities without change management cost and pain

Reporting

Analytics

SaaS


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the cfo and treasury: aligned for organizational transformation and growth

Economy & Finance

kpmg llprussell

aspects of treasury

numerous treasury

treasury career

member firm

swiss entity

risk management experience

business environment