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How to achieve top corporate treasury performance under the ‘New Normal’
www.pwchk.com
April 2015
A new landscape for treasurers under the ‘New Normal’
Not to manage risk is itself the biggest risk!
The wake-up call: from awareness … … to action
“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 Treasury 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 Treasury Survey 2014)
The Corporate Challenge
Internal Resources
Risks/Challenges
External Resources
• Increase in China cross-border businesses
• RMB liberalisation
• New HKSAR Corporate Treasury Centre policies
• New Corporate Governance rules on risk management
• Increase in corporate finance activities: spin-off, M&A, IPO, MTN, etc.
• 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
• 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
Opportunities Treasury Strategy
Financial Strategy
Business Strategy
Treasury plays a critical role in achieving corporate financial goals
Start with redefining treasury: transforming challenges into opportunities
Structuring the right treasury model to support business
The Pillars of Corporate Treasury
People Processes OperationsTreasury Organisation
Treasury Management System
Enablers
Liquidity/cash management
Financing and capital
market
Foreign exchange
management
Bank relationship and credit
rating
Risk management,
hedging programme and
insurance
Corporate Treasury
Centre(CTC)
Investment of corporate
cash
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
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
Sustainable Performance
• Discipline in risk management, setting tolerance limit, and executing risk hedging strategy
Quality Financing
Smart Cash
Robust Risk Management
To support
To support
To support
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. Treasury 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 Treasury 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. Treasury Management System: Establish a ‘Fit-for-Purpose’ and cost effective technology infrastructure
Our value propositions are professional, independent and specific to our client’s needs
What makes PwC unique as your valued partner are:
• Total Treasury 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
• Improved Board governance of treasury risk
• Optimised capital structure
• Improved cash flow to finance growth and dividend payout
• Better capital allocation on risk-adjusted basis
• More stable margins
• Tax efficient structure
• More competitive financial costs
Informed decision making
• 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
Operational benefits
• 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
PwC’s corporate treasury team
Our Treasury Team150 countries,1 team, 500 professionals
Voted Number 1
Treasury Consultant for 14 years running by Treasury Management International
Contacts
Key Subject Matter Contacts
Peter WongHK/CN Finance Advisory Services+(852) 2289 [email protected]
David WongHK/CN Finance Advisory Services +(86) 2323 [email protected]
Other China/Hong Kong Lead Contacts
Edmund LeePartnerHK/CN Finance Advisory Services Leader+(852 ) 2289 [email protected]
Albert LoPartnerHK/CN Finance Advisory Services+(852) 2289 [email protected]
Ian FarrarPartnerHK/CN Accounting Consulting Services+(852) 2289 2313 [email protected]
www.pwchk.com© 2015 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 www.pwc.com/structure for further details. HK-20150401-1-C1
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