How to achieve top corporate treasury performance under the New Normal

Transcription

1 How to achieve top corporate treasury performance under the New Normal April 2015

2 A new landscape for treasurers under the New Normal Increase in China cross-border businesses RMB liberalisation New HKSAR Corporate Centre policies New Corporate Governance rules on risk management Increase in corporate finance activities: spin-off, M&A, IPO, MTN, etc. The Corporate Challenge Business Strategy Slower China growth Normalisation of US interest rates and QE-led asset inflation Post-GFC increase in financial regulation Increased difficulty in access to affordable capital Increased volatility in RMB FX/interest rates Opportunities Strategy Financial Strategy Risks/Challenges Internal Resources External Resources Tight headcount post-gfc to support increase in business flow but fall in margins Lack of spare in-house capacity to do projects CEO/CFO more aggressive to drive performance Financial supply chain vulnerable to business cycle and event risks Double jeopardy - no more cheap funding, no more cheap US Dollar Banks deleveraging Shortage in treasury talent Not to manage risk is itself the biggest risk! 85% of China s CEOs expressed concern about access to affordable capital (PwC 18th Annual Global CEO Survey, data released in March 2015) FX risk, liquidity risk, and interest rate risk are considered the three most important risk exposures for corporate treasurers (PwC Asia Corporate Survey 2014) There are significant opportunities to transform and deliver strategic benefits to the business. The key challenge is for Boards and senior management to ensure their treasury functions are equipped to deal with those challenges and derive value (PwC Asia Corporate Survey 2014) The wake-up call: from awareness to action

3 Start with redefining treasury: transforming challenges into opportunities Structuring the right treasury model to support business The Pillars of Corporate Bank relationship and credit rating Liquidity/cash management Investment of corporate cash Corporate Centre (CTC) Financing and capital market Risk management, hedging programme and insurance Foreign exchange management Enablers Organisation Operations People Processes Management System plays a critical role in achieving corporate financial goals Quality Financing To support Quality Business Growth Achieving financing flexibility Competitive cost of capital / debt financing Strong link to capital planning and asset allocation Achieving target level of credit rating consistent with business strategy Smart Cash To support Higher Revenue Multiple per Unit of Cash Pooling of cash Netting of surplus and deficit subsidiary positions Real-time visibility and mobility of cash on demand Optimising Net Investment Income (NII) with trade off among return, risk and liquidity Robust Risk Management To support Sustainable Performance Discipline in risk management, setting tolerance limit, and executing risk hedging strategy

4 New corporate governance requirements on the horizon Effective January 2016, the HKEx Listing Rules will stipulate expanded Corporate Governance responsibility for both the Board and Management on Risk Management (approved by SFC/HK Exchange in December 2014). Listing Rules Appendix 14 on Corporate Governance: Key points on risk management (RM) governance: Accountability on risk management for both the Board and Management is explicitly defined The Board s oversight responsibility is on an on-going basis Either the Board s Risk Management Committee or the Audit Committee needs to ensure effectiveness of RM system Requirement of an Annual Risk Management Review Mandatory Management Statement on Risk Management Mandatory Risk Review Report from Risk Management Committee/ Audit Committee Mandatory disclosure in the annual report We have worked on various treasury initiatives and opportunities to help our clients achieve return on investment and sustainable growth 1. Governance: Implement new RM listing rules (many are related to treasury risks e.g. FX, liquidity risk) 2. structure: Perform an assessment of the costs and benefits of setting up an in-house bank to centralise the management of cash, liquidity, risk, and funding 3. Tax savings: Determine the implication of the newly proposed tax regime in HKSAR including (a) tax-efficient inter-company cash pooling, and (b) potential eligible activities that can be performed under the Corporate Centre Policy to benefit from the 50% deduction of corporate income tax 4. Foreign exchange risk: Set up hedging policy and strategy to mitigate risk arising from increased volatility in RMB, USD, and other major currencies 5. Smart financing: Consider the need for credit rating and bond issuance to improve financing flexibility 6. RMB internationalisation: Evaluate cross-border cash pooling, RMB dim sum bond issuance and other opportunities 7. Corporate finance structure: Consider treasury implication (e.g. gearing, covenants, capital cost) of spin-offs/ipo/m&a 8. Management System: Establish a Fit-for-Purpose and cost effective technology infrastructure

5 Our value propositions are professional, independent and specific to our client s needs What makes PwC unique as your valued partner are: Total Solution Framework end-to-end approach from quality insight in defining treasury strategy to problem solving and project implementation Diversity of international and in-country expertise, skill sets and resources leveraging our global network Successful track record with clients and international recognition as one of the best treasury consultancy service groups Invest in the future: The benefits you can realise Increased Shareholder value Informed decision making Operational benefits Improved Board governance of treasury risk Optimised capital structure Improved cash flow to finance growth and dividend payout Better capital allocation on riskadjusted basis More stable margins Tax efficient structure More competitive financial costs Improved visibility into cash and risks (FX, interest rate, credit, commodity) Improved investment returns Better use of cash More insightful and accurate cash forecasts More capacity to do business partnering Alignment of Board oversight and treasury performance Increased efficiency Lower banking costs Greater automation and connectivity Simplified processes Improved controls Centre of excellence Synergy cost savings from CTC structure Contingency liquidity procedure to handle black swan events Improved retention of talents

6 PwC s corporate treasury team Our Team 150 countries, 1 team, 500 professionals Voted Number 1 Consultant for 14 years running by Management International Contacts Key Subject Matter Contacts Peter Wong HK/CN Finance Advisory Services +(852) peter.wm.wong@hk.pwc.com David Wong HK/CN Finance Advisory Services +(86) david.ke.wong@cn.pwc.com Other China/Hong Kong Lead Contacts Edmund Lee Partner HK/CN Finance Advisory Services Leader +(852 ) edmund.ym.lee@hk.pwc.com Albert Lo Partner HK/CN Finance Advisory Services +(852) albert.kh.lo@hk.pwc.com Ian Farrar Partner HK/CN Accounting Consulting Services +(852) ian.p.farrar@hk.pwc.com PricewaterhouseCoopers Limited. All rights reserved. PwC refers to the Hong Kong member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details. HK C1 This is printed on 9lives 55 which is made with an elemental chlorine free process. It has 55% recycled fibre and 45% fibre from well-managed forestry. 9lives 55 is ISO certified.