Treasury Strategies Quarterly Corporate Cash Briefing: U.K. and Eurozone 6 October 2011

Transcription

1 Treasury Strategies Quarterly Corporate Cash Briefing: U.K. and Eurozone 6 October Treasury Strategies, Inc. All rights reserved.

2 U.K. Corporate Cash The Office for National Statistics reported that as of March 31, 2011, U.K. corporate cash levels were 777 billion. 900 Total U.K. Corporate Cash Corporate Liquid Assets ( B) B Source: Office for National Statistics w w w. T r e a s u r y S t r a t e g i e s. c o m 2

3 Eurozone Corporate Cash The ECB reported that as of March 31, 2011, Eurozone corporate cash levels were 1,954 billion. Total Eurozone Corporate Cash 2,000 1,954B Corporate Liquid Assets ($B) 1,800 1,600 1,400 1,200 1, Source: ECB w w w. T r e a s u r y S t r a t e g i e s. c o m 3

4 Corporate Cash in Selected Regions 400 Total Corporate Cash Corporate Liquid Assets T $2.05T 1.95T - UK Eurozone U.S. Sources: Treasury Strategies Inc., Office for National Statistics, ECB, and the Federal Reserve. Note: 1Q 2000 = 100 w w w. T r e a s u r y S t r a t e g i e s. c o m 4

5 U.K. Corporate Cash Growing Faster than GDP 350 Growth in U.K. Corporate Cash and GDP ( B) U.K. Corporate Cash U.K. GDP Sources: Treasury Strategies, Inc. and Office for National Statistics Note: 1Q 2000 = 100 w w w. T r e a s u r y S t r a t e g i e s. c o m 5

6 Eurozone Corporate Cash Growing Faster than GDP 250 Growth in Eurozone Corporate Cash and GDP ( B) Eurozone Corporate Cash Eurozone GDP Sources: Treasury Strategies, Inc. and ECB Note: 1Q 2000 = 100 w w w. T r e a s u r y S t r a t e g i e s. c o m 6

7 U.S. Corporate Cash Growing Faster than GDP 1,200 Growth in U.S. Corporate Cash and GDP ($B) 1, U.S. Corporate Cash U.S. GDP Sources: Treasury Strategies, Inc., Federal Reserve and BEA Note: 1Q 1980 = 100 w w w. T r e a s u r y S t r a t e g i e s. c o m 7

8 Corporate Cash Distribution Distribution of Corp. Cash 4.4T Distribution of GDP 22.2T U.K. Eurozone U.S. U.K. Eurozone U.S. Country / Region % of Corporate Cash % of Total GDP United Kingdom 20% 8% Eurozone 45% 42% United States 35% 50% Source: Treasury Strategies estimate w w w. T r e a s u r y S t r a t e g i e s. c o m 8

9 How Management of Corporate Cash is Changing As an indication that companies expect cash levels to remain high for a long time, we see them making substantial investment in their treasury infrastructure: 33% plan to invest in improved cash forecasting over the next 6 months. 25% plan to invest in upgraded treasury technology over the next 6 months. Type Change in Amount Risk Appetite Operating Cash Reserve Cash Accumulation Cash Stranded Cash *The Four Types of Corporate Cash TM was first published by Treasury Strategies in w w w. T r e a s u r y S t r a t e g i e s. c o m 9

10 Expected Levels of Corporate Cash: Next 6 Months Expected Levels of Cash (U.K. and Europe) Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Increase 44% 24% 60% 27% 39% Decrease 29% 9% 13% 36% 27% Remain about the same 27% 67% 27% 36% 34% Source: Treasury Strategies Inc. Quarterly Corporate Cash Survey, Sept 2011 w w w. T r e a s u r y S t r a t e g i e s. c o m 10

11 Sources of Corporate Cash: Past 6 Months Sources of Cash (U.K. and Europe) Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Positive cash flow from operations 92% 71% 88% 100% 82% Reduction of inventories 38% 57% 0% 17% 36% Debt issuance (medium- and long-term) 15% 14% 6% 8% 13% Increased short-term borrowing 15% 29% 12% 0% 11% Reduction in dividends 0% 14% 18% 17% 11% Sale of company assets, divestitures 8% 14% 18% 25% 7% Equity issuance 8% 0% 0% 0% 5% Source: Treasury Strategies Inc. Quarterly Corporate Cash Survey, Sept 2011 w w w. T r e a s u r y S t r a t e g i e s. c o m 11

12 Uses of Corporate Cash: Past 6 Months Uses of Cash (U.K. and Europe) Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Negative cash flow from operations 60% 33% 20% 45% 32% Capital expenditures 20% 33% 13% 18% 32% Increased inventories 20% 50% 13% 18% 25% Increased dividends or special dividends 0% 0% 20% 0% 21% Paydown of short-term borrowing 40% 50% 27% 27% 17% Acquisitions 30% 0% 40% 18% 13% Equity repurchase, stock buyback 10% 33% 0% 9% 11% Debt redemption (medium- and long-term) 10% 0% 13% 27% 9% Increased pension fund contributions 0% 0% 0% 9% 8% Source: Treasury Strategies Inc. Quarterly Corporate Cash Survey, Sept 2011 w w w. T r e a s u r y S t r a t e g i e s. c o m 12

13 Reserve Balances at BoE 160 Bank Reserve Balances at BoE September September 2011 Bank Balances at the BoE ( billion) What effect will additional 75B in QE announced today by BoE have on reserve balances? Source: Bank of England and Treasury Strategies estimate. Note: 1Q 2000 = 100 w w w. T r e a s u r y S t r a t e g i e s. c o m 13

14 Reserve Balances at ECB 600 Bank Reserve Balances at ECB September September 2011 Bank Balances at the ECB ( billion) Source: ECB and Treasury Strategies estimate. Note: 1Q 2000 =100 w w w. T r e a s u r y S t r a t e g i e s. c o m 14

15 External Factors Impacting Corporate Cash 1. Basel III Bank capital requirements Bank liquidity requirements 2. Monetary policy Flat yield curve Quantitative easing 3. Regulation Derivatives Money market funds 4. Counterparty risk 5. Trapped corporate cash w w w. T r e a s u r y S t r a t e g i e s. c o m 15

16 How Management of Corporate Cash is Changing Current market dynamics are encouraging corporate treasurers to move more quickly to a Treasury 3.0 environment. Plans for Next 6 Months (U.S.) Sep-11 Increase reliance on cash forecasting 33% Implement new technology for cash management 25% Formally modify risk management policies 23% Formally modify investment policies 18% Source: Treasury Strategies Inc. Quarterly Corporate Cash Survey, Sept 2011 w w w. T r e a s u r y S t r a t e g i e s. c o m 16

17 Summary Corporate cash is at record high in U.K., Eurozone, and U.S. Most of the increase is due to strong operational cash flow. Historical relationship between corporate cash and GDP has materially changed. Most companies don t foresee cash levels declining in the near term. Companies are grappling with higher cash levels by: Improving treasury technology Tightening risk management Updating investment policies Improving forecasts w w w. T r e a s u r y S t r a t e g i e s. c o m 17

18 About Treasury Strategies, Inc. Who We Are Treasury Strategies, Inc. is the leading treasury consulting firm working with corporations and financial services providers. Our experience and thought leadership in treasury management, working capital management, liquidity and payments, combined with our comprehensive view of the market, rewards you with a unique perspective, unparalleled insights and actionable solutions. What We Do Corporations We help you maximize worldwide treasury performance and navigate regulatory and payment system changes through a focus on best practices, technology, liquidity and controls. Treasury Technology We provide guidance through every step of the technology process. Our expert approach will uncover opportunities to optimize the value of your treasury through fully integrated technology solutions. Financial Services Our experience, analytic approach and benchmarks provide unique consulting solutions to help you strengthen and grow your business. w w w. T r e a s u r y S t r a t e g i e s. c o m 18

19 Contact Us Monie Lindsey Managing Director +44 (0) Anthony J. Carfang Partner Cathy Gregg Partner Please feel free to join our many treasury and finance groups on w w w. T r e a s u r y S t r a t e g i e s. c o m 19

20 Exit Poll 1) Is your company s technology up to the demand of managing a larger corporate cash pool? 2) Is your company s cash forecasting up to the demand of managing a larger corporate cash pool? 3) How has the use of the following short-term instruments changed in the past year? Bank deposits Money market funds Direct commercial paper Government securities Increased Decreased Unchanged N/A 4) Would you like to learn more about Treasury Strategies services? w w w. T r e a s u r y S t r a t e g i e s. c o m 20