What Every Finance Leader Needs to Know About Unlocking the Strategic Value of Treasury

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Unlocking the Strategic Value of

TreasuryNick Guglielmo Linda Wright Bruce LynnTreasurer Financial Consultant Managing PartnerThe Associated Press Former SVP & Treasurer The FECG, LLC Fireman’s Fund Insurance, Co.

Moderator: Ernie Humphrey, CEO, 360 Thought Leadership Consulting



Our Panel

Nick Guglielmo Treasurer The

Associated Press

Linda WrightFinancial ConsultantFormer SVP, TreasurerFireman’s Fund Insurance, Co.

Bruce LynnManaging PartnerThe FECG, LLC



Panel Discussion

The evolution of Treasury from transactional to strategic over the past five yearsThe strategic value of working capitalOwning risk managementThe new realm of bank relationship managementEmbracing a strategic role in driving growthLeading across the enterprise



Thank You!!



ContentAppendix



The Evolving Role of Treasury



The Evolving Role of Treasury

Source: 2011 AFP Strategic Role of Treasury Survey

N= 673



The New Strategic Role of Treasury

Source: Treasury Strategies



Today’s Treasury: Top Priorities



The Strategic Value of Working Capital

How the function of managing working capital has evolved from transactional to strategic, and how is working capital being managed, and mismanaged in today’s world? How do firms define their optimal level of liquidity? How do companies find the right home for excess cash in today’s global investment markets?



RiskMgt

(Mkt, Credit, Ops)

Cash Accounting (focus on posting, reconciling transactions)

DebtInvestment

Cash Management(focus on balances)

The Traditional Treasury• Focused on Processing

• Resources devoted to repetitive tasks

Basic

AdvancedGoals

Cash

Processing

Planning

2013 THE FECG LLC



The Modern Treasury

Cash Management

Risk Management

Debt Management

Investment Management

FinancialMarkets

&Institutions

Company&

OperatingUnits

• Policies Highly Visible• Interactive Communications• Plan, Actual & Forecast in Sync

• Functions & Systems Integrated• Performance Metrics in Place• Effective Bank Network

Technology

2013 THE FECG LLC



Liquidity MetricsFrequency = weekly

Time Horizon > 90 days

Definition / Comments

Liquidity1. Free Cash Flow

2. Cash Conversion

3. Debt Utilization

4. Available Liquidity

5. Op cash flow as % EBITDA

6. Target Balances

1. Trend: Op cash Flow – CAPEX – Dvds

2. Trend: DSO – DIO + DTP (days)

3. O/S vs Total (% / $): 3rd party & interco.

4. Cash + un-utilized credit lines ($)

5. Profit is “leading indicator”, but relation to cash flow should be parallel

6. Set limits per account or per bank. Amounts above target are “excess”, subject to “best use” (invest, pay debt, dividends, etc) by Treasury

2013 THE FECG LLC



How Much Liquidity is “Enough”?

S & P 500 (423 non financial co.) as of June 2013Selected Financial Trends - Year end

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2006 2007 2008 2009 2010 2011 2012 2013 (est)Fiscal Year

$ i

n B

ns

-20

0

20

40

60

80

100

120

140

Ca

sh

flo

w (

$ i

n M

illi

on

s)

Cash + S/T Investments Total Debt Total Cash Flow

2013 THE FECG LLC



Owning Risk ManagementRisk management not all that long ago was thought of as only encompassing risk management insurance, what is your definition of risk management? How has treasury’s role evolved in managing key elements of financial and operational risk management? What role has technology played the arena of risk management and how are firms leveraging technology on this area?Why does it make sense for Treasury to “lead the charge” in technology adoption in this area, and in general ?



Risk Management: Treasury’s Contributions

Financial Risk Management Counter Party Risk

Investments- short term and pension

Customers, suppliers, and contingents including letters of credit

Balance Sheet ProtectionsSOX- key controls

Segregation of duties

Data integrity

Claims & Near Miss AnalysisPrelude to purchasing insurance policies




Operational Risk Management Near Miss Analysis, via Inter-department Coordination and Data MiningEstablishment of Real Estate Standards

Safety

Cube and Office Space

Travel, Entertainment and Fleet StandardsLitigation Settlement Practices




Credit Risk Management Credit Terms, including DiscountsCollection Efficiency Measurement

M&A Assistance, including but not limited to:Market Scans—Credit Worthy Buyers/SellersDue Diligence including System Compatibility and Lawsuits, Planned or PendingStandard Contract Terms and ConditionsPost Transaction Assessments



Risk & Related MetricsFrequency = weekly

Time Horizon > 90 days

Definition / Comments

Risk1. Exposure – Currency

2. Exposure – Var. rate debt

3. Financial Leverage

4. Compliance

5. Op error / error rate

1. Compare to policy by currency

2. % or $ variable debt to total

3. Ratio total debt to equity

4. # of covenants (financial + non financial)

5. # / % errors (need to define “error”)

Counterparties & Operational1. # global banks &

accounts

2. Cost of funds3. Fees Pd

1. Count by total and by legal entity

2. After tax COF (% gross, net int.), $ Expense

3. $ by business unit2013 THE FECG LLC



Bank Relationship ManagementHow have you seen the strategy of bank relationship management change over the past 5 years, and how you define the expectations of your banking partners? Do you believe that Banks can play a key role as a strategic partner in offering advice and technology in driving growth and managing risk or do you believe that this is just “hype” from the banks, maybe good in theory, but not in practice?



Bank Relationship Management

2008 Paradigm ShiftIt’s all about Communication!More Consultative/Advisory PartnershipChange in Expectations about Relationship Profitability



Treasury’s Role in Driving Growth

CFOs are taking more a leadership role in leading growth strategy and obviously M&A is a key part of this strategy, can you comment on the role that treasury has played in M&A throughout your career, and the strategic role that treasury plays in your current role?



Treasury’s Role in M&AMember of the Due Diligence Team

Bond Indenture and DebtCash and Cash Equivalents portfolioRisk Management including Insurance PoliciesCredit Facility Covenants

Hedging the FX Risk of the TransactionCapital Structure Analysis



Leading across the Enterprise

How have you seen the strategic role of treasury evolve over the past 5 years, and where is it going? In what areas has Treasury taken open and embraced a key role in driving strategy and execution? How have you as a Treasury Leader been successful in building relationships that allowed you to drive results across departmental borders? How have you seen the relationship of Treasury with the CEO, and CFO during your career?



Treasury’s Strategic Role From Transaction Processor to Strategic AdviserOptimize Cash Flow and Cash VisibilityBuild Closer Relationships with Business Units/PeersMonitor and Remediate Organizational Risks



The Modern Treasury

Cash Management

Risk Management

Debt Management

Investment Management

FinancialMarkets

&Institutions

Company&

OperatingUnits

• Policies Highly Visible• Interactive Communications• Plan, Actual & Forecast in Sync

• Functions & Systems Integrated• Performance Metrics in Place• Effective Bank Network

Technology

2013 THE FECG LLC



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