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

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.

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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.

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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.

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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.

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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.

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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

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Blog entry
By afriberg, November 21, 2014

Members of the NeuGroup’s EuroTPG convened for their autumn 2014 meeting earlier this week, hosted by a member in Zurich and sponsored by Reval. Reval and a speaker from Fides tackled the technology aspect of treasury management, including the crucial piece of connectivity to banks in order to facilitate cash-related projects like enhancing visibility and rounding up liquidity. Member-led sessions covered the appropriate way to tackle treasury integrations after M&A, considerations when setting up an in-house bank, and pay-on-behalf-of, POBO and receive-on-behalf-of, ROBO.

Key Takeaways

Higher cash visibility. Related to the next-generation liquidity structures and bank account rationalization is increasing cash visibility to 90 percent or above levels and automating the cash-reporting process; this is with a view to shift from calculating daily or even intra-day cash positions to taking decisions and actions based on those positions. This increased cash visibility is an important part of efforts to reduce working capital needs and increasingly a means to manage pushback by banks not wanting to see unexpected balances of over $100 million left on deposit in jurisdictions where they don’t need or want the added liability.

How to connect? Reval’s presentation on their link-up with Fides showed members the alternatives to direct SWIFT connection and how each might impact their cash visibility (and pave the way for STP on the payments side as well, the other aspect of the connectivity equation). Here are the key ways to connect:

  1. Bank portal or portals: OK when you only have a few banks.
  2. Host-to-host connections: Also OK when dealing with few banks, but as soon as you want to send bulk payments or SEPA credit transfers, banks will not entertain host-to-host. Some banks in the Nordics may do it if you do a lot of business with them, but generally, at this stage, banks will push toward SWIFT.
  3. SWIFT Alliance Lite: It is proliferating rapidly but requires a bank investment and contracts with all the banks you are using, and some banks may not have all their branches on SWIFT.
  4. SWIFT Service Bureau. Fides is one of several service bureaus and it offers solutions for connectivity by sitting in between the company and the banks, and addresses some of the shortfalls of Alliance Lite. Services include: account statement validation; payment validation; conversion services; pre-market sanction filtering service; and outsourced SWIFT for Corporates onboarding (where required). Because Fides is a subsidiary of Credit Suisse, it has a FI BIC code, which helps in making bank reporting more smooth and turnkey.

From intercompany lending and netting structures to the full IHB. A member-led session on considerations for an IHB sparked a discussion of how far to take an intercompany lending program to the full structure of an in-house bank. If a company already has a robust netting and intercompany lending program to shift liquidity, the business case for a full IHB may be diminished. This is the counterpoint to the vision of the full-scope IHB obviating cash pools. Another consideration is the extent to which pooling and other bank liquidity management structures will be impacted by Basel III and related LCR (liquidity coverage ratio) regulations. Banks’ reluctance to accept large deposits may require greater intermediation by an in-house “bank”. While all agreed that an IHB offered the most flexibility and structure to add a payment and collection factory with POBO/ROBO, the additional benefit had to be considered carefully before going to tax and legal to get clearance for the IHB. Scrutiny of transfer pricing in intercompany lending structures also has had an impact.

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

The European Treasurers' Peer Group (EUROTPG) is a membership group for MNC treasurers and treasury operations directors overseeing treasury in Europe, who come together to exchange knowledge, share experiences and discuss solutions to common challenges .

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.

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Blog entry
By wchan, November 20, 2014

In China where cultural norms are strong, and the regulatory environment is complex and evolving rapidly, selecting a new banking partner may pose huge challenges.

The Asia Treasurers' Peer Group (ATPG) discussed this topic at their recent meeting, hosted by Intel, and sponsored by Standard Chartered Bank. Many companies today use their global banks in China to meet their China cash management banking requirements. The ATPG heard from a guest presenter, who shared their story on the rather unique alternative of partnering strategically with a local Chinese bank.

Choosing this approach to banking in China was a challenge up-front, and included spending a lot of time training the local Chinese bank on the IT and operational needs of western MNCs, but the company viewed it as a worthwhile investment on a long-term banking relationship as the company further entrenched itself in a key market for its business.

One strategy to consider included selecting a first level bank branch (i.e. hierarchically one step away from headquarters control and status) that has a high level of interest in your company’s business to ensure the appropriate level of attention and service from the bank branch. Shanghai branches may not be ideal for some, since there are many big companies located in Shanghai vying for bank’s top client attention. The largest Chinese banks which are pre-occupied with servicing the State-Owned Enterprises (SOEs) may also not be ideal banking partners for the average corporate.

For a more in-depth look at the key takeaways from this meeting, subscribe to iTreasurer.com, where you will find the executive summaries for the meetings of all groups in The NeuGroup Network.

The Asia Treasurers' Peer Group (ATPG) was founded in 2011 for regional treasurers of large MNCs with treasury operations in Asia. As the first NeuGroup in Asia, it is now the catalyst for other Asia-based NeuGroups that serve members in this region.

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.

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Blog entry
By gcassone, November 18, 2014

It's sometimes a struggle to measure and showcase treasury performance.

The fall meeting of the AT30 peer group took place last week in Memphis at the worldwide headquarters of FedEx Corporation. This was the fifth AT30 meeting and was sponsored by RBS.

We are the Champions
Members had a very active discussion on measuring treasury performance, which is driven in part by the nature and the culture of the company. The member-led session highlighted that the uniqueness of a company adds to the complexities of the valuation and organizational differences impact what measurements may look like from one company to the next.

One of the most important measurements for many is the cash forecast, the accuracy of which allows the treasury to be more cash efficient. For those members with sizable cash movements, forecasts are updated on a daily basis. As one member expressed treasury’s main role is to be a true “champion of working capital” which is supported by the transparency and accuracy of global cash balances.

Many members measure value by looking at hedge effectiveness and reduced volatility, and by comparing hedge/no hedge actions, while others look to “beat the market”.

How to Measure your Decision-making?
To some degree, treasury continues to struggle with showing its effectiveness and members often have a “hard time to getting management to see how well treasury did.” While treasury’s contributions are often measured against a performance benchmark, a quantitative measure, the more elusive question raised in this session was how to measure quality. How well do you make key decisions and how can that value be derived and highlighted to others? This idea resulted in some healthy debate among members.

Management decisions and ultimately performance are also driven by risk preferences, another variable in measuring value-added. As one member remarked, “We should all be floating (rates) if you do (only) the numbers”.

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

The Assistant Treasurer’s Group of Thirty is a membership group for assistant treasurers at MNCs who come together to exchange knowledge, share experiences and discuss solutions to common challenges in their roles and careers as assistant treasurers.

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.

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Blog entry
By jneu, November 14, 2014

Members learned what foreign banks face in the US and what MNCs can look forward to in China, plus much more.

The Tech20 Treasurers’ Peer Group met last week with a full agenda covering corporate bond trading concerns, cash/leverage considerations, cybersecurity, tax changes and much more.

We thank BNP Paribas, starting with Jean-Yves Fillion, Chief Executive Officer for North America, for supporting the meeting and providing valuable insight into what it takes today for a foreign bank to be fully committed to the US, the new dynamics in the convertible debt market and internationalization of the RMB.

Here is a sampling of the meeting takeaways:

  • The secondary trading market for corporate bonds is broken, but it will take a crisis event to fix it. While there seems to be agreement that the secondary corporate bond market is indeed in need of reform based on arguments presented by BlackRock, members saw little chance that the market would succeed in implementing the reforms suggested without a large adverse market event. They hope they are wrong.
  • Netting cash against gross debt is the way of the world. The most important change in S&P’s new rating methodology for tech firms is that it allows for issuers to net available cash and liquid investments against gross debt. The default is to net 75 percent, however, one of S&P’s top tech sector analysts said that it will consider information that supports a higher or lower haircut.
  • Don’t be data obese. The reality with cybersecurity is that it is impossible to protect all information, so firms need to decide what information is really valuable and focus protection and response plans on that. Since it is easier to protect a small amount of valuable information and focus your response, firms need to lean to purge more data. Too many firms are “data obese,” one of our panel of cybersecurity experts noted.
  • RMB gets favored treatment with reforms. As part of its effort to promote the RMB, China will offer the most compelling reforms for transactions and products denominated in RMB first. Thus, to take maximum advantage of Chinese liberalization it makes sense to be doing treasury business in RMB. 

The Tech20 also bid a fond farewell to Dick Grannis, a long-time member, who is retiring this month from QUALCOMM. 

The Tech20 is an invitation-only membership group for top treasurers in the tech sector. For 14 years running, the group facilitates leading peer knowledge exchange to help members save time with current projects and priorities by implementing others’ best practices and avoiding their mistakes. 

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