Treasury and Financial Risk Management

Solution in Detail Finance Executive Summary Treasury and Financial Risk All rights reserved

Managing Treasury and Financial Risk Treasury and Risk Insight and Control With the advent of the economic crisis, board-level executives are more focused on the treasury function than ever before. Treasury departments are challenged with proactively identifying sources of data, while pinpointing risks and shortfalls. Company-Wide Collaboration SAP Innovations 56% Fewer full-time equivalents for treasury and cash management where a treasury system automates analysis such as mark to market and value at risk Source: SAP Performance Benchmarking New regulatory and compliance requirements. The mandate to reduce finance costs. Ongoing economic and financial crises. These factors have placed unprecedented burden on treasury departments. To meet these challenges and still perform at optimal levels, treasury decision makers want greater transparency and control over complex processes associated with managing payments, cash, liquidity, and risk. At all times, they must know where their cash is, where it s originating, and where it s needed. And they need to better understand and manage potential issues associated with liquidity, counter parties, and currency. Best-run businesses are turning to comprehensive treasury management software solutions to help gain and maintain control over these complex demands. The function has adequate liquidity to drive growth and innovation. They can even integrate this information with their existing enterprise resource planning (ERP) systems. 2 / 28

Gaining Greater Insight and Control Treasury and Risk Insight and Control SAP software for treasury and risk management is natively integrated to increase transparency and control. It provides a single source of information and automate many critical processes, eliminating extensive manual data gathering and rekeying, duplicate efforts, reconciliation, and human errors. Company-Wide Collaboration SAP Innovations Many treasury departments are struggling to keep up with the business demands, volatile markets, and manual processes. SAP software solutions can simplify processes for working capital, risk management, and compliance while improving investment income and borrowing costs. Payments and bank communications software streamlines payment processes and improves the management of multiple bank communication interfaces. Cash and liquidity management software extends cash visibility and monitoring for maximum insight and accuracy. Managers also gain control over liquidity planning by accessing sources and data from multiple systems. Debt and investment management software provides insight into anticipated cash balances to optimize investment returns. Financial risk management software lets departments stay current with market conditions by analyzing multiple risk categories. Commodity risk management software helps mitigate potential threats by identifying and quantifying exposure toward commodity price and foreign-exchange risk. 3 / 28

Collaborating Company-Wide Treasury and Risk Insight and Control Company-Wide Collaboration SAP Innovations Only 35% Of companies have a fully up-to-date treasury system that supports compliance with financial accounting standards and regulations Source: SAP Performance Benchmarking In times of reduced bank lending and stagnant liquidity, strong treasury and risk management is critical. Much more coordination and visibility are required by the corporate treasury function across the board. It s no wonder best-run companies seek out SAP software to integrate this function into their overall finance operation, helping them gain both efficiency and cost-effectiveness. Reduce treasury management costs, cycle times, and resource demands Speed decision making and reduce unnecessary bank borrowing Help ensure financial reporting compliance Improve efficiency and automation by using straight-through processing Optimize working capital to fund operations with robust cash and liquidity 4 / 28

SAP Innovations Treasury and Risk Insight and Control SAP software leverages the latest innovations such as the SAP HANA platform, embedded analytics, mobile solutions, and preconfigured services that facilitate implementation. Company-Wide Collaboration SAP Innovations Database and technology solutions powered by SAP HANA accelerate key business processes with in-memory technology. This enables monitoring and analysis of high-volume data and business transactions in real time. An embedded analytics tool with simulation functionality lets you propose what-if scenarios and determine optimal strategies. Mobile solutions provide 24x7 access to mission-critical data and the ability to approve workflow on the fly. 5 / 28

Managing Treasury and Financial Risk Enhances Insight and Control Payment and Bank Communications Cash and Liquidity Mgmt. Debt and Investment Mgmt. Financial Risk Mgmt. Commodity Mgmt. Treasury and Financial Risk Why SAP? Payment and Bank Communications Centralize and optimize processes from in-house banking to corporate-to-bank communication. Cash and Liquidity Increase cash flow transparency of working capital across the whole group and improve liquidity planning. Debt and Investment Manage transactions and multiple financial instruments, while monitoring and controlling investments and risks. Financial Risk Identify and quantify exposure to foreign exchange, interest rate, commodity price, and counterparty risk. 6 / 28

Treasury and Financial Risk Payment and Bank Communications Payments and Bank Communications Cash and Liquidity Debt and Investments Strategies Financial and Commodity Risk Cash and Liquidity Mgmt. Debt and Investment Mgmt. Process Payments Manage Intercompany Transactions Forecast Liquidity Propose Deal Identify Risks and Consolidate Financial Risk Mgmt. Commodity Mgmt. Manage Payment Factory Reconcile Plans with Actual Manage Investments/ Portfolio Manage Positions Treasury and Financial Risk Why SAP? Approval of High-Volume Payments Operational Cash Flow Planning Processing of Deals Deal Request and The treasury and financial risk management process covers the complete value chain from treasury operations up to comprehensive risk management functions. Transmit and Monitor Payments Process Electronic Bank Statements Get Cash Overview Manage Treasury Transactions Deals Request: Borrow or Invest Identify Exposure Hedge and Accounting Provide Risk Indicators and Report Exposures 7 / 28

Payment and Bank Communication Payment and Bank Communications SAP Innovations SAP software for payment and bank communication centralizes and optimizes processes from in-house banking to corporate-to-bank communication. Streamlined payment processes reduce cycle times and costs, while helping to ensure compliance. However, multiple point-to-point electronic interfaces, payment standards, and data formats can increase support costs and resource demands. Treasury departments within multinational organizations face the additional challenge of complex business operations on a global scale. Cross-border payments and transactions among companies, as well as gathering and reconciling data from multiple financial institutions, are business as usual. SAP software for payments and bank communications can help you meet these challenges head on. 8 / 28

Streamline Payment Processing Payment and Bank Communications SAP Innovations Automated payment workflow streamlines routing and approvals. Intuitive status monitoring provides visibility into the payment lifecycle. Rules-based approval workflows help ensure compliance by facilitating proper payment approvals and documentation. Mobile devices can be used to gain insight into payment batches and expedite payment release. Additional payment status messages help identify and minimize exceptions. Automated bank-to-book reconciliations provide updated intraday cash balances. Furthermore, central in-house control over cash reduces reliance on banks and the need to transfer cash to regions. Standards-based interfaces eliminate the need to create custom interfaces for propriety bank data formats. Support for ISO20022 enables compliance with compliance with Single Euro Payments Area (SEPA). Bank communications can become more seamless with new spreadsheet standards. A multibank gateway to codes from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) helps minimize counterparty and liquidity risks. 9 / 28

Payment and Bank Communications SAP Innovations Better Control with Real-Time Insights into Global Cash Flow Cash flow is based on intragroup and intergroup payments. By centralizing these transactions, SAP software for treasury and risk management can help optimize payments and bank communications. Only 13% Of companies have online forecasting models that regional and global organizations use to analyze current and historical cash-flow trends Source: SAP Performance Benchmarking Through centralization, SAP software for treasury and risk management can help save time and money while staying compliant. Reduce programming and maintenance costs with a natively integrated, standards-based interface. Realize savings from reducing the number of external payments by using in-house banking and netting. Avoid the cost of external crossborder payments and reduce float and value-date losses. Optimize working capital through effective cash pooling across the group, with more interested earned as cash stays within the group. In addition, consolidate the number of global banking relationships and connections by using multibank gateways. Minimize the number of bank relations to decrease bank fees and borrowing costs. Increase the speed of processing and approvals with automation of approval workflows, alerts, and escalations. This helps ensure proper authorization, while driving compliance with streamlined documentation processes. 10 / 28

Innovations in Payments and Bank Communications Payment and Bank Communications SAP innovations facilitate workflow for payment approval and releasing, whether on a mobile device or in the cloud. SAP Innovations 40% Higher employee productivity, where mobile access is provided to employees across all levels Source: SAP Performance Benchmarking Mobile Payments With executive staff on the road and unable to sign off on high-value payments, the SAP Mobile Consumer Payments solution pushed urgent tasks to the treasurer, protecting your business from process inefficiencies and financial loss. Payment Approvals The SAP Payment Approvals mobile app displays payment batches waiting for the approval of the cash manager or financial executive anytime and anywhere Financial Services Network Bank landscapes are better managed through SAP Financial Services Network. This cloudbased network offers a single connection point across multiple services, businesses, and financial institutions. 11 / 28

Cash and Liquidity Cash and Liquidity Mgmt. SAP Innovations In any kind of economy, cash and liquidity management is a must-have. SAP software increases cash flow transparency of working capital across the whole group and improve liquidity planning. Only 28% Of companies have a cash management system that supports multicurrency management and reporting in any business unit Source: SAP Performance Benchmarking Cash and liquidity management is one of the most critical treasury functions. Yet, forecasting liquidity is complicated by the amount of data that must be gathered. SAP software for cash and liquidity management addresses the challenge with features such as comprehensive, timely insight into global sources and uses of cash as well as internal cash positions. You can maximize cash flow visibility, import cash balances from all your bank accounts, and combine them with real-time data from accounts receivable and payable systems. Add comprehensive reporting and analytics for even more effective cash management decisions. 12 / 28

Improve Forecasting and Cash Cash and Liquidity Mgmt. SAP Innovations Only 21% Of companies have a treasury system to calculate various treasury analyses, such as mark to market and value at risk Source: SAP Performance Benchmarking SAP software for cash management and liquidity is both flexible and customizable. Decentralize or centralize cash management. The choice is up to you with SAP In-House Cash and the SAP Bank Communication applications. The applications provide an overview on actual cash position per current day, the next few days, and weeks to come. This allows analysis of short- and midterm cash flow. You can also pinpoint and optimize liquidity by individual departments, subsidiaries, business subunits, or organizations. Consolidation of data from third-party or legacy systems can help link systems of different subsidiaries and regions. As a result, duplicate data collection and retention are eliminated. Also, automating data aggregation enables real-time integration of different source systems. For added convenience, the applications support internationally recognized formats for electronic banking including transfers of account statements for the previous day, partial-day account statements, and lockbox statements. 13 / 28

Increase Control over Cash on Hand Cash and Liquidity Mgmt. SAP Innovations Complete integration between treasury applications from SAP and core accounting systems adds up to more accurate cash flow forecasting and more effective liquidity management. Because SAP software for cash management is centralized company-wide, you re sure to see reduced costs and increased interest income globally. This fully integrated application accesses source data from your operational systems in real time and tracks items from other SAP applications. It facilitates data communication between the enterprise and its bank, which in turn, enhances reconciliation processes and lowers banking costs. In addition, it eliminates the inefficiencies of manual spreadsheet interfaces and slow access to information to improve liquidity forecasting. By drilling down to specific transactions that support cash forecasts, you have ready access to the data needed to make better liquidity decisions as it relates to changing market conditions. The bottom line is improved accuracy of cash forecasts and reporting. With this information, you can increase revenues through profitable use of liquidity surplus and decrease financing costs by minimizing liquidity reserves. 14 / 28

Innovations for Cash and Liquidity Cash and Liquidity Mgmt. SAP Innovations Accurate cash flow forecasting, powered by SAP HANA, helps ensure you have cash to run and grow your business. Insert image # here 13% Higher financial forecast accuracy for the top 25% of organizations, versus bottom quartile organizations Source: SAP Performance Benchmarking Cash Forecasting The SAP Cash Forecasting analytic application can help create accurate cash forecasts based on financial data from SAP and non-sap software. With the analytic application, you can develop an effective foreign-exchange hedging strategy based on real-time insight into currency exposure. Treasury organizations can also perform ex post variance analysis on cash forecasts to explain variance down to the cash-flowstatement item level. 15 / 28

Debt and Investment Debt and Investment Mgmt. Debt and investment management software from SAP gives you the power to anticipate cash balances. Manage transactions and multiple financial instruments, while monitoring and controlling investments and risks. 60% Fewer full-time equivalents for treasury and cash management in the top 25% of companies, as compared to average performers Source: SAP Performance Benchmarking Manual spreadsheet-based processes and specialized systems are cumbersome to say the least and inconsistent at best. They call for the gathering, reconciling, and rekeying of data creating automation gaps and integrity issues. Debt and investment management software from SAP enables high-level automation from straight-through processing and deal capture to financial accounting. By integrating this software with our general ledger application, you can support international financial reporting requirements and regulatory compliance smoothly and effortlessly. 16 / 28

Transform Your Treasury Operations Debt and Investment Mgmt. 60% Lower costs associated with treasury and cash management in the top 25% of companies, as compared to average performers Source: SAP Performance Benchmarking Complete integration with the SAP ERP Financials solution helps ensure accurate accounting compliance in accordance with both Generally Accepted Accounting Principles (US-GAAP) and International Financial Reporting Standards (IFRS). You can rapidly tap into electronic marketplaces for commercial paper (short-term debt) to obtain liquidity. It is even possible to request, execute, track and report on deals or investing transactions. With proper controls, compliant statutory and operational reporting is facilitated. Consolidation of data from multiple sources and uses of cash delivers accurate and up-to-date forecasts. Monitoring an investment portfolio and quick execution of trades can help rebalance your portfolio. You can also provide reports that help other teams monitor deals and visualize risks. 17 / 28

Achieve Optimization for Treasury Operations Debt and Investment Mgmt. Treasury management software from SAP optimizes straight-through processing with full-view, real-time analysis, audit trail, and compliant reporting. Insert image # here 80% Increase in time spent on analyzing trend and data, where business users access data through tools such as dashboards and drill-down views Source: SAP Performance Benchmarking SAP software for treasury management is completely integrated and can be linked to accounting and reporting systems supported by SAP ERP Financials. They re prepackaged, so your business can be up and running quickly. SAP software for treasury management also comes complete with a wide range of financial instruments for efficient deal and position management. For example, you can perform a flexible analysis of financial exposure and advanced risk-measurement methods including market-to-market, value-at-risk, sensitivity, and gap analyses. Decision makers can protect the business from potential losses from partner insolvency, online control of trading activity, active and riskoriented limit management, and worldwide exposure and credit risk analysis. Your entire business can stay in control and compliant with comprehensive documentation and history of all transactions. 18 / 28

Financial Risk Financial Risk Mgmt. Are you at risk? How can you mitigate exposure? Financial risk management software can help identify and quantify exposure to foreign exchange, interest rate, commodity price, and counterparty risk. 39% Fewer full-time equivalents for compliance and risk management, where a risk management system automates reporting Source: SAP Performance Benchmarking Financial risk analytics help treasury personnel manage market-based risks with greater accuracy. They can conduct real-time reviews of cash positions, risks, commodity price changes, and currency conversion rates. And with dashboards and other visualizations, decision makers can quickly calculate exposures and identify risks. Risk mitigation strategies improve the quality of hedge transactions and structure deals. This approach enables the acceleration of transactions and notifications to the business. In addition, creation of an audit trail helps ensure that every hedging transaction is recorded and accurately reported. 19 / 28

Protect Against Financial Risk Financial Risk Mgmt. 31% Fewer full-time equivalents for compliance and risk management, where issues and reports are regularly sent to management, auditors, and IT Source: SAP Performance Benchmarking Financial risk analytics can help determine the effects of market risks including interest rate, foreign exchange, and commodity price fluctuations on revenue streams, input costs, and cash flows. Also, decision makers can pinpoint counterparty risk exposure to cash balances across global bank accounts. Effective hedging strategies can help mitigate market risks with real-time visibility into various risk positions, calculation of value at risk, and the ability to test hedge effectiveness. Complete integration with SAP ERP Financials helps ensure accurate hedge accounting compliance in accordance with both US-GAAP and IFRS financial reporting standards. 20 / 28

Identify, Measure, and Manage Risk More Effectively Financial Risk Mgmt. SAP software for treasury and risk management integrates operational cash flows, transactions, and market data for comprehensive analyses to help determine and contain financial risks. 90% Of organizations have no automated reporting and alerting to facilitate risk management Source: SAP Performance Benchmarking SAP software for treasury and risk management can help you better understand various risk exposures and model their severity under various scenarios. Manage all types of financial risks and take action by hedging market-based risks. Make a flexible analysis of financial exposure or use advanced risk measurement methods, such as market-to-market, value-at-risk, sensitivity, and gap analyses. Protect against potential losses from business partner insolvency, online control of trading activity, active and risk-oriented limit management, and worldwide exposure and credit risk analysis. Stay compliant with automated transaction posting and position reporting with our general ledger application. And with prepackaged solutions, rapidly deploy the solution in a predictable time frame. 21 / 28

Commodity Risk Commodity Mgmt. To succeed, you need a way to identify and quantify exposure to commodity price and foreign-exchange risk, as well as proven steps you can take to mitigate those risks all while complying with government regulations. Only 11% Of companies follow innovative hedging practices to protect against supply market volatility Source: SAP Performance Benchmarking The SAP Commodity Risk application can help you manage price risks by eliminating spreadsheets, increasing transparency, and enabling generation of timely reports on commodity positions and exposures to market prices. You can assess your commodity risk position coming from commodity procurement and commodity sales transactions in real time and react quickly to business and market changes. It also supports deal capture and processing of commodity-based financial derivatives transactions, accounting integration, and hedge accounting for derivatives. You can also generate up-to-date reporting on your complete commodity portfolio. 22 / 28

Commodity Risk Excellence Commodity Mgmt. SAP Commodity Risk integrates tightly with the SAP Commodity Procurement and SAP Commodity Sales applications to automatically capture exposure positions from forecasts or physical transactions and compile risk positions. Financial hedging transactions are captured and used to update the appropriate risk positions. To manage these paper trades, the applications enable the import and storage of market prices, handle confirmations, and counter-confirmations, as well as segregation of duties. Hedge management lets you define hedge plans, maintain hedging relationships, measure the effectiveness of hedges, and post hedge accounting results to the general ledger. Complete commodity risk reporting analytics give you a view into risk positions and risk policy compliance in real time. Hedge management lets you define hedge plans, maintain hedging relationships, measure the effectiveness of hedges, and post hedge accounting results to the general ledger. Complete commodity risk reporting analytics give you a view into risk positions and risk policy compliance in real time. Deal settlement functions and tight integration with accounting enables you to manage margins, perform month-end valuations, post profit and losses, settle paper deals, and create payments or invoices. 23 / 28

Improve the Efficiency of Commodity Hedging Commodity Mgmt. With a clear and real-time view of your portfolio of commodity positions, gain efficiencies in commodity risk hedging, hedge accounting, and risk policy compliance. By implementing SAP Commodity Risk, you can manage your commodity risk on a real-time basis based on your unique risk approach. Now risk management decision makers can have very fast access to highquality information one source for information to evaluate and execute appropriate hedges according to your company s risk policy. And integration with financial accounting helps to reduce manual work, eliminate sources of error, and increase overall risk management efficiency. As a result, top management no longer needs to worry about audits and the regulatory compliance of risk management. They are free to focus on managing your company s commodity-related business. 24 / 28

Treasury and Financial Risk Value Map Payment and Bank Communications Financial Performance Develop and Translate Strategy Planning, Budgeting, and Forecasting Profitability and Cost Analysis Monitoring and Reporting Cash and Liquidity Mgmt. Debt and Investment Mgmt. Accounting and Financial Close Financial Accounting Entity Close Corporate Close Reporting and Disclosure Financial Close Governance Financial Risk Mgmt. Commodity Mgmt. Treasury and Financial Risk Payments and Bank Communications Cash and Liquidity Debt and Investments Strategies Financial Risk Commodity Risk Treasury and Financial Risk Why SAP? Collaborative Finance Operations Receivables Collaborative Invoice to Pay Travel Shared Services Framework The treasury and financial risk management process covers the complete value chain from treasury operations up to comprehensive risk management functions. Enterprise Risk and Compliance Enterprise Governance, Risk, and Compliance Access Risk Global Trade Compliance Sustainability Reporting 25 / 28

Why SAP? Payment and Bank Communications With treasury and financial risk management software from SAP, treasury functions can streamline operations, manage cash, optimize liquidity and financial risk, and maximize investment returns at a lower cost. Cash and Liquidity Mgmt. Debt and Investment Mgmt. Financial Risk Mgmt. Commodity Mgmt. Treasury and Financial Risk Why SAP? Tightly Integrated Application with End-to-End Support for Processes SAP provides comprehensive and tightly integrated software for treasury and financial risk management. Innovation for Better Choices With SAP, you can identify and improve treasury processes and leverage capabilities across your organization based on your business needs and goals. Leveraging of Key Applications Depending on your business requirements, SAP applications for treasury and financial risk management can help your finance department optimize efficiency, leaving more time for analysis. As a result, you can better understand the reasons behind the numbers, instead of simply reporting them. 26 / 28

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