What's Neu - News from the The NeuGroup Network of Peer Groups

Blog entry
By afriberg, February 20, 2015

The continuation of a strong US dollar cycle has moved FX and related interest rate risk management to the top of NeuGroup treasurers’ priority lists for 2015.

With this in mind, The FX Managers' Peer Group, the first NeuGroup for MNC foreign exchange managers from companies like Accenture, Caterpillar, eBay, Ford, Intel, McDonald’s, Microsoft, Pepsi and P&G will convene for their winter 2015 meeting on March 12-13. The event will be sponsored by Chatham Financial.

Topping the agenda is a session reviewing two member examples of efforts to further reduce earnings volatility, in light of the strengthening USD cycle and volatility generated via the knock-on effects, by making adjustments to their cash-flow and profit hedging programs, respectively.  This session will be complemented with a discussion of hedging nominal exposure vs. VaR, CFaR, or EaR and the pros and cons of these alternative methodologies (and methods of calculating) them to quantify exposure.

Also on the agenda:

  • Performance measures and backtesting. The group will discuss the cost-benefit analysis of hedging, based on two member cases: one will share how the FX group assesses how well the hedge program delivers on its goals, and the other will do the same, using a recent project to backtest the program as a backdrop for the conversation.
  • Compliance update. The group will update one another on the state of regulations rolling out in FX and derivatives markets (Dodd-Frank, EMIR, etc.) and what must be done now to ensure members' compliance status.
  • Efficiency in the FX program. Despite the FX impact on earnings, FX managers are still tasked with doing more with less, so members will review systems and staff resources dedicated to the various processes to wring further efficiencies from their hedge programs.

The NeuGroup is the leader in peer knowledge exchange and intelligence for treasurers through its iTreasurer publication and The NeuGroup Network of 18 member groups serving more than 350 treasury and finance professionals across functions, industries and global regions.

Blog entry
By mkmoore, February 19, 2015

The financial community has certainly been keeping an eye on China these days and The NeuGroup is no exception.

The NeuGroup has partnered with Standard Chartered to host a series of roundtables for those senior finance professionals who want to get a jump on how Renminbi (RMB) internationalization can offer competitive advantages to corporate treasury management. You can read some key takeaways from the first meeting in Chicago here.

There are a few spots open for the roundtables in New York on February 24 and San Francisco/Palo Alto on March 5. Contact Geri Westphal at gwestphal@neugroup.com for more information.

We are also devoting the March issue of iTreasurer to RMB. This issue will include a round-up of information gleaned from all three RMB Roundtables, plus more on this hot currency. Subscribe here to make sure you are on the list to receive this special issue.

In the Year of the Sheep/Goat, The NeuGroup will continue to build their Asia Treasurers’ Peer Group and their new group, The Asia CFOs’ Peer Group. Sheep and Goats are comfortable in small private groups, so The NeuGroup approach to invitation-only, member-driven groups ticks all the boxes. You can find out more about The NeuGroup Network of Peer Groups here.

Best of fortune and luck in this next year!

Blog entry
By jneu, February 17, 2015

A long overdue welcome to a new member of our team. 

With Ursula Conterno (Brenner) now working on initiatives across The NeuGroup Network, I wanted to let everyone know that we are pleased to welcome her as a full-time member of our team. This is from the beginning of the year, so it is long overdue.

Ursula had been assisting with our Latin American Treasury Managers’ Peer Group (LATMPG) and Global Cash and Banking Group (GCBG) in the second half of last year. By joining us full-time, she will assume leadership of those groups and free up Anne Friberg and Geri Westphal to pursue new intiatives. We are extremely pleased to see another experienced professional transition successfully from group member to group leader: a testament to the value by our model, where members want to work with us to facilitate bringing it to their peers.

As director, peer knowledge exchange, Ursula also will be coordinating our world-class TMS/TMS implementation project (a cross-group member effort), drawing on her member experience with the World-Class Cash Management Principles project (done in partnership with the GCBG and Citi) and TMS implementation at Dell.

Bringing you experienced leadership

Ursula adds to the experienced leadership of the NeuGroup team. She worked for six years in Dell’s treasury, starting as a foreign exchange senior consultant, becoming international treasurer for the Americas (Canada and Latam) and most recently serving as global cash manager, where she was a member of the GCBG.

Our experience with Dell treasury, which has long been one of our best member companies, participating in the broadest spectrum of NeuGroups, has shown that they have a tremendous track record of identifying and developing treasury talent. Ursula is no exception.   

With this experience, Ursula will also bring fresh perspective and continued innovation to The NeuGroup.

We were all very happy to start 2015 with Ursula on board. We hope all our members, sponsor partners and friends feel the same way and will do all they can to make her feel welcome. 

Blog entry
By Anonymous, February 13, 2015

Top treasurers agreed that now is the time to redenominate trade to RMB and optimize cross-border trade settlements with China, while keeping a watchful eye on the new regulatory announcements to see if future steps are appropriate.
Looking to provide treasurers and senior finance professionals with the opportunity to discuss shared experiences in dealing with the internationalization of the Renminbi (RMB), The NeuGroup and Standard Chartered have partnered to conduct a series of RMB roundtables. Chicago was the first stop of a five-city tour for “The Path to Bolder RMB Implementation” series. The meeting was interactive and full of great information regarding the RMB’s rise and increased use.

Many of the roundtable attendees’ companies have been in China for 20-plus years and are looking for ways to establish structures that will improve the flow of funds in and out of China. These treasurers want to take advantage of the current regulatory changes, while at the same remain cautious in their approach to not being “too early” and having to undo or redo these structures to comply with any future regulatory changes.  

Jeremy Bollington, Regional Head of Corporate & Institutional Clients, Americas, for Standard Chartered Bank welcomed the group before walking attendees through the agenda topics, including RMB liquidity management, an economic update, a session on regulatory changes and anticipated future announcements, managing RMB exposures and a discussion of longer term risks and opportunities.  

We began the day with a showcase presentation by Caterpillar, who has been in China for more than 30 years. In 2012, SAFE invited them to participate in the pilot program and after a lengthy application process they were approved in January 2013. The company’s implementation project included an entire review of their existing banking structure which proved to be too complex and unsustainable for the long run. It embarked on a complete restructure using a “1 plus 1” approach (one international bank plus one  local bank), which allowed the heavy equipment maker to significantly reduce the number of bank relationships and accounts, centrally manage cash from its Beijing Treasury Center, and create a cross border lending program to make better use of cash in the region.

As part of the economic update session, David Mann, Managing Director, Head, Macro Research, Asia for Standard Chartered Bank summed it up this way: “It comes down to whether or not you believe the new leadership’s anti-corruption drive aimed at implementing more reform for consumer driven economy OR whether it is simply a way to consolidate more power at the top.” Although statistics show that the Chinese economy has slowed and the labor market shows signs of softening, the growth projections are still expected to be above 7 percent for 2015 and 2016. “It isn’t likely that we will return to the double digit numbers, but the dollar delta is still expected to continue even if at a lower percentage overall,” he said.  

David made the observation that many western MNC’s are finding that the China “red carpet” is gone, thus indicating China’s desire to encourage more competition in all industries. The group agreed that they hold a certain level of caution and have so far taken a “wait and see” approach to the new changes.  Some believe that Chinese regulators are welcoming the outside world into China only to learn their ways and that they will continue to subsidize Chinese companies to unfairly take business away from the newcomers. “They are giving these freedoms to you to learn from you and then dominate you,” said one attendee.  

Despite this caution, attendees were encouraged in what Caroline Owen, Regional Head of RMB Solutions, Americas for Standard Chartered Bank, had to say. “China has picked up the pace of deregulation. They want to become less dependent on foreign currency particularly USD and Euro. It’s all about cash flow and trade. They want to pay for goods with RMB and push the currency out,” she said. This is evidenced by the RMB’s rapid movement from the number 13 SWIFT payment currency in 2013 to its current spot of number 5 as of November 2014. There are currently 10 currencies with direct trading relationships with the RMB and 15 clearing banks in offshore markets, with another 10 more offshore clearing banks expected this year. This rapid growth shows how much countries want to support this evolution.

According to SWIFT, the RMB as a percent of world payment currencies has increased more than seven times since 2011. RMB trade settlements are now much easier to process since corporates no longer have to provide a large amount of supporting documentation for RMB settlement for cross-border transactions. The new process is a simpler one-page double-sided form that is filed with the bank. You must check the box that you have satisfied your tax obligations and local banks may make you provide tax documentation, but it is certainly easier than it has ever been to process RMB trade settlements.

Companies can fund ongoing RMB payables to Chinese suppliers by leveraging the cross border lending programs including the PBOC One-Way RMB Cross Border Lending, PBOC Two-Way RMB Cross-Border Lending in the Shanghai Free Trade Zone (SFTZ), and PBOC Pan-China Two-Way MB Cross-Border Lending (new). Attendees discussed the specifics of each program in detail and were encouraged to learn how these structures can be a way for net borrowers in China to fund working capital needs without impacting foreign debt quota or debt capitalization rules.  

With the Chinese New Year coming on February 19, 2015, many expect more regulatory announcements that will further boost the RMB internationalization, including a significant expansion of the existing SFTZ to include three new zones. The SFTZ will be expanded by nearly four times its current size and is expected to include Pudong, where many of the financial institutions are currently located. The expectation is that the regulators will possibly duplicate the rules from SFTZ to these three new zones, but we will have to see what the official announcement says.   

The internationalization of the RMB is an irreversible trend offering easier and faster ways to settle in RMB. After the day’s discussions, many attendees agreed that now is the time to redenominate trade to RMB and optimize cross-border trade settlements with China, while keeping a watchful eye on the new regulatory announcements to see if future steps are appropriate.  

Thanks to those who attended the Chicago roundtable. We look forward to our next stop in New York on February 24, 2015 and then on to Palo Alto on March 5, 2015. Please contact gwestphal@neugroup.com if you are interested in attending a future roundtable.

Blog entry
By mkmoore, February 09, 2015

The NeuGroup and Standard Chartered Bank will host a roundtable session in Chicago on February 11 to discuss how Renminbi (RMB) internationalization can offer competitive advantages to corporate treasury management.  Treasurers and senior treasury professionals from top global corporations will discuss salient topics around the challenges and solutions for immediate RMB implementation, including:

•    RMB liquidity management and utilizing cross-border lending to mobilize liquidity
•    RMB Internationalization, including the latest regulatory developments
•    Managing RMB exposures: to hedge or not to hedge
•    Long-term risks and opportunities  RMB, including hedge strategies

The participants will also share their experiences in on-boarding the currency. Key takeaways from this first roundtable will be available on February 12.

The RMB has moved mainstream and will be critical to businesses. According to SWIFT data, the Chinese yuan overtook the Canadian and Australian dollar as a global payments currency in November 2014, and now takes position behind the Japanese Yen, British pound, Euro and US dollar. The fast-changing regulatory landscape continuously opens new opportunities, which can make using the RMB a source of competitive advantage. Subsequent roundtables will be held in New York and San Francisco/Palo Alto. A report detailing the best practices gleaned from the conversations generated at the roundtables will be made available after the events.

Blog entry
By jneu, February 05, 2015

LATMPG members are not talking soccer, but currency. There is some optimism on Argentina, but Venezuela is digging a deeper hole.

As US MNC exposure to Venezuelan FX rate devaluation garners increasing media attention, members of The NeuGroup’s Latin American Treasury Managers’ Peer Group (LATMPG) met in Miami last week to share notes on avoiding it, while expressing optimism that Argentina would not create even more of the same (a least for a few quarters).

According to a recent analysis by Reuters, at least 40 US companies in the S&P 500 have substantial exposure to Venezuela’s worsening economic crisis. Collectively, they could be forced to take several billion dollars in write downs.

Per Reuters:

The problem is that the dollar value of the assets as disclosed in many of the companies' accounts is based on either the rates at 6.3 or 12 and only a limited number of transactions are allowed at those rates. The assets would be worth a lot fewer dollars at the 50 rate in the government system and the dollar value would almost be wiped out at the black market rate.
The currency system is also about to be shaken up following an announcement by Venezuela President Nicolas Maduro on Jan. 21, leading to fears of a further devaluation.

LATMPG members shared notes on what they are doing to justify continued use of the official and SICAD 1 rates and mitigate their FX losses. Several of their peers, meanwhile, have announced write-downs in the 100s of millions for the fourth quarter, according to Reuters, including Ford, $800 million; Kimberly Clark $462 million and Schlumberger, $472 million.  NeuGroup member, Clorox, had enough and exited the country last year.

Expectations for the region are dim, with no members expecting an improvement. This outlook was reinforced by HSBC, the meeting sponsor, according to bankers from the region and their Latam FX strategist.

Concerns about an “FX adjustment” in Argentina, however, are tempered by the election run up. The leading Presidential candidates for the October 25th general election appear more pragmatic and market friendly than the current government of Cristina Fernández de Kirchner. Thus, the hope is for no major devaluation until after the October election and better policy to prompt economic improvement thereafter.

 Members can only hope to free more cash from repatriation restrictions and get it out before these Latam countries devalue their currencies further and the USD continues to strengthen. This surely will be on the agenda again for the group’s next meeting.   

The NeuGroup is the leader in peer knowledge exchange and intelligence for treasurers through its iTreasurer publication and The NeuGroup Network of 18 member groups serving more than 350 treasury and finance professionals across functions, industries and global regions.

The Latin American Treasury Mangers’ Peer Group is an invitation-only group of senior treasury professionals with oversight responsibility for LatAm treasury management.

Blog entry
By Anonymous, December 17, 2014

Although treasury managers are having a hard time seeing it now, some think there could be hope for recovery in 2016.

Argentina default and economic upheavals have had serious implications on the treasury operations of MNCs. The Latin America Treasury Managers Group (LATMPG) held a webinar sponsored by HSBC to discuss the latest developments in this country and what to expect in the near future. While members covered actions and challenges in quite some detail on the call, here are some overarching takeaways from their conversation:

Economic challenges will continue at least until 2016. Until Argentina is able to access international financial markets and attract FDI, the vicious cycle of recession, inflation and devaluation will continue. A 2016 recovery would be possible if the “holdouts” situation is resolved and a market-friendly candidate wins the 2015 presidential elections.

Do not expect getting cash out of Argentina will be easier any time soon. Most members are already finding it more difficult to repatriate cash. As reserves rapidly approach a critical level, the Central Bank will try to protect reserves by delaying USD payments and possibly putting additional restrictions/quotas in place.

Unwritten rules are as important as written rules. In addition to the many regulations/restrictions around USD conversion, there are unwritten practices like compensation of import and export flows within a same company or FX quotas for selective sectors.

More devaluation is expected, so look for alternatives to protect your assets. With negative interest rates and expected devaluation, the best bet is to try to get as much cash out as possible or find natural hedges. Some MNCs are using pre-paid imports, paying USD loans and replacing them with local debt or investing in USD-indexed bonds/loans. On-shore FX hedging is available but expensive and tenor is only 180 days; still, banks are seeing more volume on NDFs.

For more than 20 years, The NeuGroup has been the leader in peer knowledge exchange and intelligence for treasurers through its iTreasurer publication and The NeuGroup Network of 18 member peer groups serving more than 350 treasury and finance professionals across functions, industries and global regions.

Blog entry
By mkmoore, December 11, 2014

Discussions highlighted some of the exposure drivers and hedge considerations emanating from panelists' business models, geographical footprint and financial profile like gross margin and off- vs. onshore cash levels. Key takeaways are below.

This week Anne Friberg, The NeuGroup's senior director of peer knowledge exchange and leader of the FX Managers’ Peer Groups 1 and 2, led a panel on FX risk management at a conference in San Francisco, with panelists from Agilent, Gilead Sciences and TRW, the former two of whom are members of The NeuGroup Network. In fact, many NeuGroup members and alums were among the speakers, showcasing the caliber of the 350+ member strong NeuGroup Network.

The event was EuroFinance’s inaugural US west coast conference, entitled "Managing Rapid International Growth: Finance and Treasury Supporting Change," and about 150 corporate practitioners (many of course in the tech space, given the location and conference theme), bankers, and vendors were in attendance. iTreasurer featured the growth theme in its November 2014 issue, guest edited by Ms. Friberg (available here for NeuGroup Network members and iTreasurer subscribers).

Foreign Exchange Risk Management

The panel on FX risk management, moderated by Ms. Friberg, featured treasurer Guillermo Gualino from Agilent( members of the Tech20 Treasurers' Peer Group), and assistant treasurers Peter Shen (member of the FX Managers' Peer Group 2) from Gilead Sciences  and Guy Simons from TRW Automotive.

The discussion highlighted some of the exposure drivers and hedge considerations emanating from their business models, geographical footprint and financial profile like gross margin and off- vs. onshore cash levels.

Risk management objectives often focus on reducing FX-driven volatility on earnings and cash flows from balance sheet revaluation and transactional exposures. The policies underpinning the FX program is important but in reality, unwritten rules are often equally important, such as "if there are no questions about FX impact on earnings on the investor relations earnings call, treasury has done its job."

For companies whose exposures internationally are relatively new, what usually prompts a decision to begin hedging is some materiality threshold that, if the exposure goes unhedged, would have an impact on results beyond some acceptable level established by policy. An exposure above $1 million is a common threshold. Of course, there are exceptions that need to be approved for currencies that are expensive to hedge, for example emerging-markets currencies, where the cost of hedging sometimes wipes out any gross margin the business makes.

What begins as a simple exposure-by-exposure hedge approach can for some companies develop into a longer term strategy to rearrange operations such that natural offsets are created and the need for outright currency hedging is reduced. Agilent has a deliberate strategy to effect such change over time.

One if the chief challenges for an effective FX program is the exposure forecast that supports hedge decisions, as well as well-understood accountability for its accuracy. Here, understanding the business and how it works is key. Gilead's Mr. Shen noted that when the company introduced a cure for Hepatitis C, forecasting of its sales was a big challenge as sales of a cure is fundamentally different to forecast than ongoing drug therapy for a lifelong condition like HIV or diabetes.

Agilent's Mr. Gualino emphasized the importance of challenging business assumptions and thoroughly analyzing the business profile of the company before and after a merger, or in his case, the split of Agilent into to two companies of roughly the same size: "Don't assume that the profile will be the same, only smaller," he cautioned. TRW's Mr. Simons agreed that forecast accountability was paramount, and in that context, treasury should carefully consider what information it needs from other part s of the company and only ask for what it really needs. After all, TRW does not stand for a "Thousand Reports Weekly."

Crash Course in Treasury and Lessons From Rapid Growth

Sponsored by Bank of America Merrill Lynch, HSBC and BNP Paribas on the bank side and a sprinkling of vendors, the event was a crash course in treasury for companies about to embark on or ramp up international growth. Jennifer Ceran, former treasurer of eBay, current finance VP at Box and alumna of The NeuGroup's Tech20 Ttreasurers' Peer Group, kicked off the conference with lessons from her tenure at several high-growth companies. Other sessions focused on the treasury organization, bank relationship management, cash visibility, trapped cash, technology choices, emerging markets challenges, European cash management, cash collections and taxes.

The NeuGroup is the leader in peer knowledge exchange and intelligence for treasurers through its iTreasurer publication and The NeuGroup Network of 18 member groups serving more than 350 treasury and finance professionals across functions, industries and global regions.

Blog entry
By admin, December 01, 2014

As risks increase and audit universes expand, Internal Auditors’ Peer Group members, who recently gathered at host Microsoft for their fall meeting, have found some creative ways to cover responsibilities not previously under IA.

Show the risk in cutting IA budget.

While most IAPG members are expected to cut their budgets in lean times just like everyone else in the company, others have been able to say that they will not be able to do all of the necessary audits without better funding. Much of the difference comes from tone at the top, but there is something to be said for showing how audits will be cut and control lost if IA isn’t properly funded.

Use “shadow” audits.

There are ways to audit without formally going through the audit process and by spreading risk responsibility through different levels. Several members find many non-IA groups conducting “audits.” These shadow audits can be well incorporated into a broader risk management plan if people in the production processes are able to manage risk at their level based on their own expertise. This can be especially effective for issues like quality control. As long as risk ownership is clearly defined, it can span the factory floor to the C-suite.

Loop in HR.

Especially in the technology sector, people may hold multiple jobs among competitors, collecting and distributing valuable information such as interview questions, financial data and confidential research. While not a sure solution, members have found that asking employees about other jobs they hold can at least be a deterrent for such behavior.

The Internal Auditors’ Peer Group is an invitation-only peer group for senior corporate internal audit professionals from across industries, with oversight responsibility and direct line of reporting to the board-level audit committee. Founded in 2006, this group practices peer knowledge exchange covering the unique challenges facing internal audit.

For 20 years, The NeuGroup has been a trusted thought leader and respected advocate for global finance and treasury professionals. The NeuGroup leads the way in peer knowledge exchange through its iTreasurer publication and The NeuGroup Network, which includes 18 invitation-only groups serving more than 350 treasury and finance professionals across functions, industries and global regions.

Blog entry
By Anonymous, November 25, 2014

The Treasurers’ Group of Thirty 3 recently met at MUFG in NYC to discuss a variety of topics, including current projects and priorities, defending the balance sheet, the impacts of recent regulations on tax inversion strategies, and the compliance demands of an array of recent regulatory requirements.

The NeuGroup was happy welcome MUFG as a new sponsor to The NeuGroup Network.

T30-3 treasurers juggle a variety of high-priority projects, including efforts to fortify balance sheets, support changing businesses and meet activist demands, and maneuver through tax rules that tie up sizable amounts of offshore cash.

But one thing is clear. Capital structure is a top priority.

The current projects and priorities described by members were dominated by capital allocation-related projects, with one member summing it up this way, “capital structure is a mirror to the business; you must be clear with what you need to run your business. Explain it and take control over how your shareholders view you.”

Based on trends presented by MUFG, investors have rewarded dividend-paying firms with higher valuations than non-dividend payers, relative to growth. These trends also point to the increase in M&A activity and an increase in the average Total Shareholder Return (TSR) for companies that engaged in M&A, averaging around 4.5% per year, compared with 3.3% for those that did not engage in M&A.

The NeuGroup is the leader in peer knowledge exchange and intelligence for treasurers through its iTreasurer publication and The NeuGroup Network of 18 member groups serving more than 350 treasury and finance professionals across functions, industries and global regions.

For a more in-depth look at the key takeaways from this and other groups in The NeuGroup Network, subscribe to iTreasurer at iTreasurer.com