treasury centralization at dover corporation€¦ · treasury centralization at dover corporation...
TRANSCRIPT
Treasury Centralization
At Dover Corporation
Garrett Jenks
Risk Manager
Robert Chan
European Treasurer
Presentation Objective
To support this effort, we will focus on two primary topics:
Banking Services Foreign Exchange
Procurement
The objective of today’s presentation is to provide insight into Dover’s experience centralizing core
treasury functions
Dover Corporation
• Diversified global manufacturer with annual revenues greater than $8 billion
• Focused on 4 business segments: – Communication Technologies
– Energy
– Engineered Systems
– Printing and Identification
– Consists of 32 operating companies world-wide
• Strong Financials – Fortune 500 company
– Single A credit rating
• Entrepreneurial business model that encourages, promotes and fosters deep customer engagement and industry-leading product innovation
Treasury Prior to 2012
• Treasury supported investor relations
• Treasury related practices varied by
operating company with decision
making at the local level
• Limited corporate view of bank fees
and expenses
Treasury Organization
• Dover decided to split the Treasury and Investor Relations functions
• In late 2011, Dover hired a new Treasurer
• He expanded the Treasury team to include resources dedicated to operations and risk management
Treasurer
Senior
Analyst
Treasury Manager,
Americas
Treasury
Risk Manager European
Treasurer
Risk
Analyst
Treasury’s Main Priorities
• Ensure funding to facilitate global
growth
• Secure financial services with prices
commensurate for a large MNC
• Managing the financial risk profile of
Dover
• Bank and rating agency relationship
management
Dover Treasury Goals and Behaviors
Improve the Efficiency of Processes Around Cash &
Financial Transactions
Strengthen Internal Controls Around Cash
& Financial Transactions
Manage Dover’s Financial Risk Profile
Lower the Costs of Financial Transactions
Behaviors Operate Ethically
Be Proactive Collaborate
We will not sacrifice one goal
in order to achieve another.
Enterprise Risk Management
1. Fraud Risk Mitigation: Treasury has control over
when bank accounts and services can be opened
and closed.
2. Cash and Revolver Risk Mitigation
- Efficient allocation of services to banks in credit
facility
- Non-functional cash balances are minimized
Costs
1. Reduce unnecessary bank fees
2. Local F/X transactions
3. Lost Yield from Un-Optimized Investment Income
Bank Management Improvement Goals
1. Increase cash visibility on global basis
2. Reduce bank fees
3. Increase internal controls
Treasury Risk Management
1. Technology Risk Management: Using SWIFT
reporting to consolidate bank balance reporting.
2. Bank Account Certainty
- Definitive list of global bank accounts
- Banking scorecard that tracks fees for all services
and accounts
Benefits
1. Increasing Net Investment Income
2. Reducing operating expenses
3. Lowering F/X transactions costs
TREASURY’S BANKING VISION
Cash Efficiency and Credit Risk
• Non-functional cash balances are left in surplus
positions
• Inefficient allocation of cash management business
to relationship banks
Technology Risk
• Heavy reliance on manual data collection and
process
• Key personnel risk: manual processes makes
treasury reliant on personnel with specialized
knowledge of process
IDENTIFYING RISK OF DECENTRALIZED ACCOUNTS
Risk to Enterprise and Treasury
Fraud Risk
Local operating companies have discretion over opening
and closing of bank accounts and cash management
services allowing for potential bank related fraud.
Bank Group Risk
• Control of how local accounts are managed (i.e.
open and closed)
• Potential for fees unknowingly increase
Enterprise Risk Treasury Risk
CALCULATING COSTS OF BANK FEES
Typical approaches for Quantifying Costs of Bank Fees
1. Total Annual Bank Fees Paid
Bank fees could be rising with additional revenues or could be due to industry-wide fee-to-
service trends.
2. Fee-to-volume Ratio
Too granular for senior level attention
3. Fee-to-services Provided Ratio
Too granular for senior level attention
4. Total Fees Compared to Industry Peers
Comparison of fees does not pinpoint where Dover Treasury can take action.
Step 1: Build a compelling business case to engage senior
management.
One-time
• Ensure that senior management is aware of and supports
Treasury’s bank account rationalization efforts
BANK ACCOUNT REVIEW PROCESS
Steps to Control and Manage Bank Accounts
Step 3: Interview Account Owners
Semi-annually
• Interview/email each account owner to confirm list of global
accounts, services and fees paid
• Create master database list of accounts to be confirmed
Step 2: Schedule Information Gathering
Annually
• Schedule time with each operating company
• Frame conversation as supporting the units with necessary cost
reductions
Step 4: Track Accounts and Services
Ongoing
• Compile and consolidate bank account data in Master Database
Step 5: Outline Criteria
Annually
• Determine rules and threshold you will use to screen out fees
that need to be reduced and accounts that need to be eliminated
Step 6: Tier and Communicate Expectations
Annually
• Determine which fees and accounts are Level 1 non-negotiable,
Level 2 Negotiable and Level 3 Strategic
Step 7: Share Best Practices
Quarterly
• Share best practices among operating companies regarding fees
and services that can be eliminated quickly and with little cost to
the business
Step 8: Sustain Senior-Level Support
Quarterly
• Regularly demonstrate benefits of bank management
improvements to senior management
DATA COLLECTION
Tools for Data Collection
1. Banks and bankers
Develop relationship with bankers and ask them for recommendation of accounts and services
2. Bank Analysis
Review bank analysis statements to look for wasted services and fees
3. Develop survey to discuss with operating companies
Use a survey or interviews to understand business needs and service requirements
Important! Listen to your customers
4. Peers and Network
Speak with your peers and others in your network to share best practices
Accounts
1. How many bank accounts does your entity control?
2. How many bank relationships do you have?
3. Which banks do you have these accounts with?
4. How are these accounts utilized? What is their
purpose?
Learning
Don’t attempt to understand the reasoning behind their
account structure
1. Why did you open these accounts?
2. What were you planning to do with these accounts?
3. Why didn’t you open “XYZ” type of account?
METHOD FOR COLLECTING DATA
Interviewing process
Services
1. What cash management services do you have?
2. How much in cash management fees did you pay in
2012?
3. How much have these fees increased or decreased
over the past one, two, and three years?
Educating
Don’t attempt to change their perspective on their
account current fee or account structure (yet)
1. How can Treasury help you manage your accounts
and services better?
Things to ask What not to ask
TRACKING BANK DATA
Level 1 Level 2 Level 3
Based on March 2012 fees. Seg A $8,313 $8,976 $10,736
These are 1 month fees only. Seg B $8,464 $7,917 $1,244
Seg C $4,962 $1,496 $0
Seg D $1,198 $2,460 $1,679
CORP $3,189 $1,874 $525
$26,125 $22,723 $14,184
Level 1 Level 2 Level 3 Seg $313,499 $272,675 $170,208
Bank
A 2,346.04 1,541.00 CORP
B 31.00 A
C 259.00 430.88 677.00 B
D 60.00 180.11 C
E 534.68 D
F 191.00 30.00 A
G 143.00 177.36 302.00 B
H 2,111.00 162.72 C
I 22.41 D
J 264.50 123.00 525.43 A
K 290.00 558.93 1,244.00 B
L 455.00 1,179.38 352.58 C
Monthly
Annual
Criteria for accounts and services
Level 1
Level 2
Level 3
Questions to
consider
1. Is there a low-cost
alternative to this
service or account?
2. Can local operating
companies eliminate
these services without
disrupting business
operations?
3. Have costs for this
kind of account or
service risen over past
years?
Questions to
consider
1. Is there a valid business
case for keeping these
accounts or services?
2. Are these accounts or
services necessary for
local operations?
3. Are these local specific
regulatory issues that
require these accounts?
4. Are there tax implications
for eliminating or
restructuring these
accounts?
Questions to
consider
1. Can Treasury add
value to the enterprise
by performing these
cash functions
centrally?
2. Can Treasury utilize
its scale to have a
better negotiating
position?
3. Can the operating
company change its
process strategically
to create savings
opportunities?
Non-negotiable Negotiable Strategic
Criteria for accounts and services
Level 1
Level 2
Level 3
Example
s 1. Paper statements
2. CD-ROM for lockbox and
disbursements
3. Paper/fax confirmations
4. Dual sided scanning of
lockbox items
5. Weekend lockbox
processing
6. Dormant accounts
Example
s 1. Local banking relationships
2. Lockboxes for low volume
accounts
3. Accounts that may be
commingled
4. Services that allow for
efficiencies
Example
s 1. Globally integrated banking
platform
2. Low-cost F/X transactions
3. Policy requiring all new
accounts and services
routed through Treasury
4. Shared Service Center
Non-negotiable Negotiable Strategic
IMPLEMENTATION / ONGOING MANAGEMENT
Implementation / Continued ongoing management
1. Develop training manual and establish backups
2. Insured proper segregations of duties and internal controls in place
3. Have routine meetings with bankers to go over structure and fees
4. Establish practice with bankers to notify Treasury anytime there are requests from the field
5. Regularly review account analysis statements
6. Create a scorecard of key initiatives to be tracked and measured
Foreign Exchange Procurement
• Dover has extremely large intercompany trade flows between operating companies in different countries – These flows require currency conversion
• Dover Treasury helps its operating companies get the best price for foreign currencies
Foreign Exchange Procurement
• F/X can generate hidden costs – F/X rates get buried in operating company sales and
COGS
– Banks often try to charge above-market F/X rates to earn more money
– This can lead to additional costs that you might not see
• How can Treasury help operating companies? – By having banks compete for F/X trades, we source the
cheapest rates, which has a positive impact on margins
Foreign Exchange Procurement
• Dover Treasury discovered in 2012 that its cash management banks were charging very high spreads on F/X transactions – Alerted by an Operating Company CFO, who saw a
large F/X disparity between EUR/USD rate in WSJ and quote from bank
• Treasury initiated a process to identify an electronic F/X dealing platform
• Initiated negotiations with cash management banks to negotiate F/X spreads
Foreign Exchange Procurement Dover initiated a pilot F/X procurement program with an operating company.
Amount bought: $1.5 million of EUR and THB
Time period: July 13 to August 16
Total number of trades: 8
Total savings ($): Over $40,000
Total savings (%): Over 2.6%
Based on the pilot program’s results, Dover moved forward with a larger scale program to procure F/X for its operating companies.
Foreign Exchange Procurement
• Make Sourcing F/X from Treasury easy: – Operating company
emails Treasury F/X inbox to request set-up
– Treasury will provide a simple form to fill out and email with F/X requests
– Going forward, operating company sends email requests to the Treasury F/X inbox and transactions will be processed
Lessons Learned
• Strive to understand your business’ service needs
• Be proactive, not reactive
• Be a collaborative partner – strive to present “opportunities” for real cost savings or process improvements
• Be mindful of treasury’s brand within the organization
• Continually evaluate bank fees and services
• Be aware of “hidden costs” (e.g., foreign exchange spread)
• Continually evaluate how to better serve your organization in the future