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Basisprincipes van interne beheersing op het gebied van Treasury – deel I

| 06-05-2016 | by Jan Doosje |

Hoe vaak komt het nog voor dat een externe adviseur of een nieuw aangetreden functionaris moet constateren dat de financiële functie op het deelgebied Treasury qua opzet bij een bepaalde organisatie niet goed ingericht is ? Naar mijn idee te vaak, vooral waar het bedrijven en organisaties uit het midden- en kleinbedrijf betreft. En dit terwijl control op het gebied van de Treasuryfunctie vrij snel en vrij simpel te verkrijgen is!

Voor de ‘niet financiële’ lezer zal wellicht niet goed duidelijk zijn wat de Treasury functie inhoudt. Als tweede vraag komt op: “Wat is goed ingericht?”.

Ik zal daarom beginnen met deze vragen te beantwoorden.

De Treasury functie houdt zich bezig met beheren van de financiële waarden en verplichtingen van een organisatie met als doelstelling om op zowel lange als korte termijn voldoende liquide middelen te hebben voor het voldoen aan (toekomstige) verplichtingen. Een tweede belangrijk element is dat dit tegen marktconforme tarieven dient te gebeuren (hier worden ook de geldende rentepercentages bij inbegrepen). Het laatste, en vooral gezien ervaringen bij diverse organisatie, zeker niet het meest onbelangrijke element is, dat dit dient te geschieden tegen voor de organisatie acceptabele en te dragen risico’s.

Treasury houdt zich bezig met:

Kasgelden
Banksaldi en optimalisatie hiervan (cash management)
Leningen opgenomen
Leningen uitgegeven
Rentebeheersing
Valutarisico’s
Optimalisering van rentebaten of rentekosten
Goede voorwaarden met de bank(en)

Kort gezegd dient de Treasury functie er zorg voor te dragen dat er altijd voldoende geld in kas (lees: banksaldo) is en dat hiervoor niet teveel betaald wordt en er geen, of vrijwel geen risico’s aan verbonden zijn. In deel twee van dit artikel zal ik verder ingaan op de inrichting van de Treasury functie.

Jan Doosje – Owner of Fimterim Advies & Consultancy

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If you are not a Treasurer with the ambition of a Dentist

05-05-2016 | by Pieter de Kiewit |

In a previous blog I wrote about a career in treasury possibly being a dead end street. My former boss Cees taught me about the concept of the ambition of a dentist: when you graduate in dentistry, you most likely will do the same at the start of your career as you will do at the end. There is nothing wrong with that, if that is what you want. I would like it when my banker and shoe repair man would have the same ambition.

I know treasurers with the career line of a dentist. I know treasurers who are trying to avoid or leave the dentistry line. Here are some alternative routes I have seen:

Make lateral moves to other jobs, but still in the CFO team: accounting, control, credit management, perhaps legal. This may be the path to become a CFO;
Start helping your business development colleagues with the financing part of business opportunities and gradually move in their role;
Switch sides of the table: become a banker, a consultant, an auditor, a treasury software specialist or a teacher;
If you are really fed up with being a treasurer and/or want to make a drastic move you should be prepared to invest: give up your monthly salary, seek further education and become yoga teacher, or something else. This can also be done gradually by combining jobs/education.

I think life is too short to be in a job you do not like. Luckily I have daily meetings with treasurers who are passionate about their job. The majority of the working (treasury) population did/does not make conscious career choices, a fact that always intrigued me. I meet people who live the ambitions of others (parents or spouses). If you want to give direction to your treasury career or discuss the dentist thing, give me a call. I am happy to brainstorm with you,

Pieter de Kiewit
Owner Treasurer Search

Profit versus cash

03-05-2016 | by Ad van der Plas |

It all started in the 90 ‘s of the last century when the Securities and Exchange Commission (SEC) requested the Financial Accounting Standards Board (FASB) to provide guidelines for the presented net profit in financial statements. The idea was to help private investors make better comparisons between the various investment opportunities. The set out guidelines were made mandatory for all listed companies in the USA. The principles of the FASB guidelines – generally accepted accounting principles (GAAP) – were also adopted in the financial statements of unlisted companies and applied worldwide (IAS) and in The Netherlands (RJ).

It is important for companies to comply with Standard Guidelines in their external financial statements. The reported net profit, however, is not the key management information. The profit is based on “provision accounting” and includes lots of expectations and assumptions that are far from sure. For example the calculated amounts for pension provisions, depreciation, actual investment and accrued revenue are based upon big ifs and maybe’s. A better and more accurate tool of management is the free available cash flow. Ultimately, it is every company’s goal to make a bottom line cash surplus.

For investors the free available cash – and not the calculated net profit – is the single most important information.

Investors in long-term-debt want to know if and when the company can pay back the interest and principal based on the generated cash.
Investors in equity capital want to know if the revenues on their investment have sufficient value for money compared to alternative yields such as mutual funds, bonds, savings accounts etc. All returns are compared based on cash calculations.
Daily, weekly, monthly, quarterly and yearly the management need to know the turnover, margin, costs and net profit but most important : the actual generated cash and the use of capital. Why else would Warren Buffett believe that the real value of a company is determined by the total expected discounted net cash flow?

Want to know more about managing on cash ? Feel free to contact me.

Ad van der Plas – independent Treasury Consultant & Interim Manager
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26 mei Financial Systems: Workshop: Treasury Systems – het waarom en hoe (niet) van Treasury & Banking Software

29-04-2016 | by team treasuryXL |

Op 26 mei aanstaande vindt Financial Systems 2016 plaats: een gratis te bezoeken evenement in Nieuwegein voor finance professionals die als beleidsbepaler of gebruiker betrokken zijn bij de inzet van finance IT tools of diensten binnen hun organisatie.

Om 15.15 uur wordt de workshop: Treasury Systems – het waarom en hoe (niet) van Treasury & Banking Software gegeven:
Fouten, dubbele informatie, inefficiency, gebrek aan inzicht: redenen om uw cash management, treasury en banking infrastructuur te professionaliseren en automatiseren.

Deze interactieve workshop is voor degenen die aan de corporate zijde in en met de treasury discipline werken en gaat in op vragen als “Welke processen wil ik automatiseren en waarom?”, “Hoe selecteer ik software?”, “Waar let ik op bij het schrijven van een implementatieplan?” en vooral “Hoe doen anderen dit?”. Met uw eigen input en die van een panel van ervaren interim managers reiken we handvaten aan die u een overview kunnen verschaffen.

Een invitation-only sessie, gefaciliteerd door www.treasuryXL.com. Pieter de Kiewit zal de sessie modereren.

Wilt u deze sessie bijwonen? Stuur dan een mail naar Monique ([email protected]). Zij kan u een speciale code verstrekken waarmee u zich kunt inschrijven voor het evenement en onze sessie.

team treasuryXL

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Improving your working capital by using L/C’s

26-04-2016 | by Jan Meulendijks |

Afraid of Letters of Credit because they are a fuss?? Don’t be!! Next to being a term of payment which gives you a lot of payment certainty, they can also be used as a source of financing your company.

Of course you need to be careful in preparing the required documents for your export-L/C’s, but that is mostly a matter of reading the text and consulting with your bank. We can go into that in a future paper.

Having said this, how can you use a L/C for your own financing purposes?

Most L/C’s stipulate a certain form of buyers’ credit, e.g. the date of payment is 90 days after the date of the invoice or shipping document. Immediately after shipping you present the complete set of required documents to your bank who, after approving them, will claim the invoiced amount with the L/C-opening bank and pay it to you after 90 days (in this example); minus charges of course.

In case you are short of liquidity/funds you can request your bank to advance the L/C-amount to you immediately. Your bank has no obligation to do so, but will be willing in case the L/C-opening bank has a favourable reputation and/or your bank has confirmed the L/C (in which case they have a payment obligation anyway…).

Example

Transaction amount: EUR 100.000,–

L/C has been confirmed by your bank; handling charges EUR 500,–; confirmation charges 400,–.

Payment date: 90 days after date of shipping document.

Interest rate 2.5% (based on 3-month Euribor + surcharge based on your credit rating); discount factor against 2.439% for 90 days is EUR 609,75.

After presenting the documents, your bank checks them on complying with the L/C-terms. Upon approval, your bank will credit your account for an amount of EUR 98.490,25 (100.000 minus 500 minus 400 minus 609,75).

The interest rate/discount factor will often be lower than the rate you pay for using your regular credit facility, because this transaction is indivdually funded in the money market on the currently very low Euribor-basis.

In practice the number of days will be slightly different because you will need a few days to complete your documents and present them to your bank, but don’t let that hold you back…

Jan Meulendijks – Cash management, transaction banking and trade professional

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Options are for wimps

26-04-2016 | by Rob Soentken |

Does it make sense to use options for hedging? The following little story is about a senior person who I respect a lot, and who didn’t like using options.

One day he asked me to execute some call options for his investment book. He never used options, so I asked him if he had changed his mind about the product. He just laughed and said he hadn’t.

“Why would I buy an option if I know the prices are going up? Any option premium I pay is lost money.”

Somehow I’m convinced he held the same opinion about selling options.

Value of a USD and Call option on a USD

Diagram 1 explains his feelings. I assume he was considering only the left half of the payoff diagram. After an appreciation of the USD, a USD is always worth more than a call option on a USD, the difference being the option premium.

There is no downside if you ‘know’ where the market is going, if there is no uncertainty. Using options implies you are not sure about the direction. In a way he was saying ‘options are for wimps’.

The future of the USD is leading

For a company importing goods from outside the EUR zone the choice could be very similar: to buy the foreign currency outright or buy a call option on that currency. Possible actions are driven by the views on 2 dimensions of the USD future:

Where will USD go? Down or Up?
How will USD go there? Steadily or Uncertainly?

These 2 dimensions lead to 4 possible actions for hedging currency risk, as depicted in Diagram 2.

If the view on USD is Up, in a Steadily way the choice to ‘buy USD or buy an option’ is straightforward: Buy 100% of the required USD, because any option premium would be wasted money.

If the view on USD is Up but in an Uncertain manner, it could be recommendable to buy 100% At-The-Money options. Obviously the premium is an expense, but considering the expected Uncertain price action the price of USD could also be going down, meaning the USD can be purchased against cheaper than expected prices. This would represent a gain possibly offsetting and exceeding the loss of the premium.

If the view on USD is Down and in an Uncertain manner, it could be recommendable to buy 100% Out-Of-The-Money options. Like my manager in the beginning of this article, this call would be a back-stop against unexpected outcomes. Obviously the premium is an expense, but considering the strike being Out-Of-The-Money, it’s a relatively small one.

Finally, if the view on the USD is Down, and in a Steadily way it could be an interesting approach to hedge a certain percentage and to add to that position in a dynamic way, until the full 100% of the required USD amount has been purchased. In a way this position is a replication of buying a Call option, without incurring the expense of the premium. Obviously there could and would be cost involved if additional USD purchases would be above the initial purchase. But if the Down view materialises, there would be gains in the form of cheaper USD purchases.

Above article reflects the personal views of the writer. It should not be used as a guidance to the use of derivatives in the context of investments or risk management. Any investor or risk manager should develop and determine their own independent views and actions.

Rob Söentken

Ex-derivatives trader

Rousseff impeachment: short-term strength for BRL

22-04-2016 | by Simon Knappstein |

Will the ousting of President Rousseff help the Brazilian Real to strengthen or not?

From a high of 4,15 at the end of January USD/BRL has fallen steadily to 3,55 level today. This strengthening came on the back of a broadly weaker USD, a rebounding oil price, renewed inflow into Emerging Markets in general and supported by a high carry for the BRL more specifically.

What has played an important role more recently is the diminishing popularity of president Dilma Rousseff. This comes in part by a massive corruption scandal at state-run oil company Petrobras with a lot of Worker’s Party politicians already convicted. Yesterday, the Brazilian Lower House voted for her impeachment over allegations for manipulating government accounts to hide a budget shortfall. All this has crippled the government’s ability to deal with an economic recession and rising unemployment.

The consensus FX forecast for USD/BRL, with current spot at 3.62, is 3.90 in 12 months’ time.

According to Nordea the potential impeachment of president Rousseff is a “short-term positive for the BRL at best. Short-term positive because markets seem to cheer the potential for change and for more political stability under Vice President Temer, albeit with the recognition that the BRL has already strengthened a lot and that most of the impeachment may be priced. More importantly, however, Brazil’s huge and numerous challenges will not go away with President Rousseff and markets may soon realize that.”

ING that expects USD/BRL to trade at 4.05 in one year’s time states: “Yet, we continue to see a high risk of the current market euphoria to fade as an impeachment does not necessary mean a highly stable political environment thereafter”. That might be an understatement as vice-president Temer, who would assume power on an interim basis when Rousseff has to step aside, also runs the risk of an impeachment process.

And although, as Scotiabank poses it “hopes that changes in the country’s leadership could lead to more market friendly economic policies” market participants seem to underestimate that “Brazil is undergoing a deep economic crisis exacerbated by a profound crack in its political institutions” and more specifically underestimate “the nature of the structural change required to rebuild credible political institutions”. Scotia sees the BRL weakening to 4.20 in 11 months’ time.

So in the short-term the BRL might strengthen a bit further still but further out it is still in general expected to weaken to around 4.0 against the USD.

Simon Knappstein

Owner of FX Prospect

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Negative Interest Rate Policy: No lasting effect on FX

14-04-2016 | by Simon Knappstein |

Negative interest rates are gripping Central Banks worldwide. The BoJ has resorted to this unexpected and unusual policy at the end of January. The ECB is expected to dig deeper into negative realms at their March meeting. The Swedish Riksbank has also gone negative and the Fed is contemplating the possibility for the eventuality economic growth will falter and inflation will fall. And of course the Swiss are already quite accustomed to negative interest rates. But in the FX markets the effects are minimal and short-lived.

So, are Central banks reaching the end of the effectiveness of their extremely loose monetary policies? If so, the big question is what next? Plain currency intervention? Hard to imagine currently, though the Swiss National Bank is said to be continuously intervening to prop up EUR/CHF.

The ECB has crossed the zero interest rate border in the summer of 2014 bringing its depo-rate to minus 0.10%. A move intended to stimulate credit growth by commercial banks, and as a means to lower the value of the Euro as to import more inflation. Although the latter was not explicitly mentioned everyone knows it was.

Since then the Swiss National Bank in December 2014, the Riksbank in February 2015 and the Bank of Japan in January 2016 have followed suit by introducing negative interest rates.

Currency impact

Figure 1 – Currency impact

The impact on the currency exchange rate is questionable and certainly not a straightforward main driver, as can be seen in figure 1.
When the ECB introduced a negative interest rate in the summer of 2014 it was accompanied by the start of the QE program and indeed EUR/USD moved considerably lower. The rate cut to -0.3% last December had no material impact on the exchange rate, even though it was followed by the first Fed rate hike in years.

The pressure on EUR/CHF could not be relieved by a rate cut to -0.25% in December 2014 so it was soon followed by the abandoning of the minimum exchange rate at 1.20 and a further cut to -0.75%. EUR/CHF stabilized but only continuous intervention by the SNB has brought the pair higher since then. The charts for EUR/SEK and USD/JPY speak for itself.

The conclusion is that there is very little to no evidence that negative interest rates lead to weaker currencies to support inflationary pressures.

Simon Knappstein

Owner of FX Prospect

Consensus FX forecasts March 2016

30-03-2016 | by Simon Knappstein |

The March edition of the consensus FX forecasts report shows that spot US Dollar has weakened broadly since February. In the forecasts for 1 year the changes for he USD are less strong and more diverse though.

Changes vs. February

Against the CAD and RUB the USD is expected to weaken a little more than last month. The oil price is a main driver here. Less strengthening is seen in 1 year against the Indonesian Rupiah IDR and against the South African Rand ZAR. Both are supported by a high carry, and in the case of the IDR coordinated action in the form of economic reforms and interest rate cuts is supporting economic growth and the Rupiah.
Against the general direction of a weakening USD there are a few currencies against which the USD is expected to strengthen more versus last month. These are the Indian Rupee INR, the Turkish Lira TRY and the Korean Won KRW. For the specifics here please see the comments in the report.

Market Focus

Developed Markets

Although the Fed has voiced a softer tone on the interest rate path, the USD is still expected to strengthen supported by tighter monetary policy from the Federal

Reserve this year. A hawkish re-pricing of the 2016 path presents upside risk to the USD.
Expect the EUR to weaken on the basis of policy divergence and interest rate differentials.
The Brexit threat has provided for a sizeable drop in GBP; risks remain tilted to the downside into the June 23 referendum.
The recovery in oil prices is still fragile and a pullback would punish the CAD. Over the longer term, the CAD should take flight anew more sustainably, in step with the oil price recovery and the improved economic environment in Canada.
JPY is expected to weaken, as it reverses its YTD sentiment-driven gains and monetary policy divergence takes the upper hand again.

AUD sentiment might be tentatively turning the corner, but AUD remains vulnerable to a slowing Chinese economy.

Emerging Markets

The RUB stabilised on the back of a rising oil price, but the recovery is fragile and tentative.
TRY found some support during the recent risk-on period but idiosyncratic risks and on-going geopolitical risks are expected to weigh on the TRY.

Latam

The BRL has recovered somewhat thanks to a combination of high yields and a more benign global risk environment. Political risk remains high and unwinding of the carry trade might see a sharp weakening of the BRL.
MXN has responded positively to aggressive and concerted policy action. Further gains in MXN are expected.

Asia

CNY should weaken modestly in response to slower growth and central bank policy accommodation.
IDR is supported by a change in investor sentiment on the back of coordinated action by the central bank and government.

Simon Knappstein

Owner of FX Prospect

Basisprincipes van interne beheersing op het gebied van Treasury – deel I

If you are not a Treasurer with the ambition of a Dentist

Profit versus cash

26 mei Financial Systems: Workshop: Treasury Systems – het waarom en hoe (niet) van Treasury & Banking Software

Improving your working capital by using L/C’s

Options are for wimps