Liberate Trapped Cash and Increase Working Capital TEXPO 2014 – Houston, Texas Dresser-Rand & DNB – Partners in Working Capital Management Today’s Presenters: • • • • Robert Seton Schur, CCM Assistant Treasurer – Dresser-Rand Houston, Texas Jonathan M. Hauser – Manager Global Treasury – Dresser-Rand Houston, Texas Lars Mylius Davidsen – SVP Global Treasury Advisor – DNB Bank Oslo, Norway Jose R. Gomez, CTP – FVP Global Treasury Advisor – DNB Bank Houston, Texas DNB – A Strong Bank From A High Quality Country Norway is a strong country with a stable economic posture: • Norway has one of the world’s largest sovereign wealth funds. The fund is about 868 billion USD as of March 2014 • The Norwegian government can only spend about 4% of the fund annually which is close to the overall annual return. • Norway is a Constitutional Monarchy. • Norway has AAA credit rating and has no sovereign debt. • Norway is a top 10 exporter of oil. • The Houston area has the largest concentration of Norwegian expats and there are over 100 Norwegian companies operating in the area. DNB – A Strong Bank From A High Quality Country Norway’s Largest Financial Services Group and the Second Largest in the Nordic area. • Market cap of USD 20.2 billion (Dec 2013). • Pre-tax operating profit before impairment in 2013 of 24,5 billion NOK (= USD 4.24 bn). • International Network of 20+ Branches & Representative offices: • • • • • Nordics: Norway, Sweden, Denmark, Finland Baltics: Latvia, Lithuania, Estonia UK, Germany, Luxembourg, Greece, Russia United States China, Hong Kong, Singapore, India, Brazil & Chile • Solid Shareholder and Strategic Sovereign Support - 34% stake held by The Norwegian Government. • Strong credit agency ratings A+/A1 and A1/P1. • Employs 12,000 people worldwide and has over 400 billion in assets. • Globally focused on Energy, Shipping, Healthcare and Seafood. DNB – A Strong Bank From A High Quality Country DNB global footprint Liberate Trapped Cash and Increase Working Capital! Our Global Presence Corporate Headquarters Paris, France Corporate Headquarters Houston, Texas Dresser-Rand Global Locations Corporate HQs Regional Centers Operations Sales Offices Service Centers Liberate Trapped Cash and Increase Working Capital! Corporate Treasury Team Roles and Responsibilities • Define the need and develop criteria for possible solution. • Manage the internal process to coordinate the contribution of all of the required constituents. • Obtain approval from senior management. • Compose and issue the RFP – manage the decision as to which partner banks to invite to the contest. • Evaluate the responses and select a partner. • Manage and coordinate the implementation process. • Deliver and measure the promised results. Corporate Treasury Team Roles and Responsibilities • Evaluating your global cash positions. • Establishing thresholds and managing subsidiary cash forecasts in a decentralized treasury environment. • Obtaining the buy in from important internal constituents such as tax, legal and accounting. • Maximizing working capital across borders, currencies, time zones and subsidiaries. • Assessing the realities and lessons learned from implementing a complex global account structure. Evaluating Your Global Cash Position • • • • • Challenging in a decentralized treasury environment. Many subsidiaries accross the world makes it…complicated. Different accounting systems. Local cash management by subsidiaries. How much cash on hand is necessary to run the business, meet obligations and have a reasonable cash cushion. • Tax issues with cross border transactions in restrictive jurisdictions, such as India and China. Managing Subsidiary Cash Forecast and Establishing Thresholds in A Decentralized Global Treasury Environment • Subsidiary cash forecast can be problematic. • Challenges: • Implementing common forecast requirements and rules. • Changing the way that people have always done business and getting them to let go of the cash. • Establishing reasonable cash levels and automating as much of the process as possible. Obtaining Buy in From Important Internal Constituents Such as Legal, Tax and Accounting Participation and buy in from tax, legal and accounting is extremely important. • The tax team will usually help decide the home jurisdiction of the top legal entity or pool owner. • The legal team will decide on the type of legal entity structure and opine on agreements between the parent and subs as well as the banks involved. • Corporate compliance will make sure that all local regulations and requirements are met and followed. • The accounting team will need to understand all of the flows and how to define and make the correct entries into the company’s books. They will need to understand the structure and how the partner bank will provide transaction data that will lead to accurate and complete financial reporting. Assessing The Realities and Lessons Learned from Implementing a Complex Global Account Structure • Language barriers between the company, the subsidiaries and the partner banks. • Timing and related issues. • Local holidays. • Working to get same day cross border value on funds moved to the pool master level. • Tax regimes vary from jurisdictions, even within the Eurozone. • Conforming to tax requirements and local reporting rules of all the different countries in scope is challenging. Liberate Trapped Cash and Increase Working Capital! Types of Pooling Structures Notional Cash Pooling • Subsidiaries open bank accounts in their own name in local currency at the pooling center. • No intercompany loans are created. • Subsidiaries: credit balances are deemed bank deposits and debit balances are deemed bank overdrafts. • All account balances – both credit and debit – are treated on a net basis. • Interest is bank interest. • Interest rates applied are based on the net position per currency in the cash pool (not traditional bank spreads). • Corporate Treasury can choose interest margins to create revenues for Finance Company or Treasury. Types of Pooling Structures Multi-Currency Multi-Entity Notional Pool: • Can Enable multiple group companies in numerous geographical regions to retain local accounts at local banks. • Consolidation is achieved by transferring local balances (both debit and credit) to accounts held by the subsidiaries at the pooling center. • There is no change of ownership of funds and no question of intercompany loans. • Offset is accomplished without physical concentration/conversion (FX). • One interest rate per currency (no spread between overdrafts and deposits). • Permits not only concentration of excess cash, but allows overdrafts within the pool. • Full offset capabilities (risk and accounting) for both companies and bank. • Will work in multiple timezones and geographies. Types of Pooling Structures Zero Balance or Physical Cash Pool • The finance company (or other subsidiary) opens accounts in their name at pooling center. • Subsidiaries can deposit cash with the finance company or borrow from the finance company. • Intercompany loans are created. • Intercompany loans need to be administered. • Interest is intercompany interest. Types of Pooling Structures Hybrid Cash Pooling Structure I • Interest and balance netting per currency. • Bank interest is computed on the net balance per currency. • Lower financial expenses / higher financial income for the group. Credit netting – centralized balance checking. • A single credit line - reduced need for credit facilities. • Reduced need for local credit lines. • Can compute Internal (intra-group) interest on the operating accounts. • Less adminstration / automatic calculation of interest for subsidiaries. Types of Pooling Structures Hybrid Cash Pooling Structure II • Access to local payment systems. • Lower money transfer charges (for both the payer and the beneficiary) • Better cut-off times due to access to local payment systems • Balance checking on subsidiary accounts (recommended) and subsidiary level accounts. • Hybrid Cash Pooling Structure can also operate as an Overlay Structure. Dresser-Rand Group Cash Pool Structure U S D D-R Luxembourg International Sarl MCLA D-R Luxembourg International Sarl U S D GCA Dresser-Rand Group, Inc. GCA U S D Dresser-Rand Norway AS OPR OPR - TBD D-R Luxembourg International OPR D-R Luxembourg International OPR Dresser-Rand Norway AS N O K D-R Luxembourg International Sarl D-R Luxembourg International Sarl GCA N O K Grupo Guascor SL E U R E U R OPR U S D U S D U S D Dresser-Rand Norway AS E U R OPR Dresser-Rand Germany E U R OPR - TBD Dresser-Rand UK E U R OPR - TBD OPR Dresser-Rand France OPR - TBD E U R CAD D-R Luxembourg International Sarl D-R Luxembourg International Sarl GCA GCA CAD Dresser-Rand Canada Dresser-Rand UK OPR – TBD G B P G B P OPR – TBD Dresser-Rand Norway AS OPR G B P
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