Treasury Building Blocks

Transcription

1 Treasury Building Blocks Adapting the treasury function to High Growth and International Expansion DDF - 28 th May 2013 Jesper Broskov LEGO Group Treasury

2 Overview 23,405 million 34% Danish family owned turnover 2012 operating margin employees End rd largest toy company in the world Sold in more than More than 60% years of consecutiveg rowth countries of this year s sales are novelties The LEGO Group Brand 2

3 Strong growth since Forced Treasury to focus on Scalability, Risk Mitigation and Stewardship DKK million The LEGO Group

4 Profit before tax DKK million The LEGO Group

5 Growth Drivers The LEGO Group Markets 5

6 The LEGO Group LEGO Foundation KIRKBI A/S LEGO A/S Division(s) NN LEGO System A/S LEGO GmbH LEGO Inc. LEGO Ltd. XX. (total of 44 Legal entities)

7 Cooperation between KIRKBI and LEGO Group KIRKBI Asset Management Short & Long term inv management Funding (DKK) Deposits & Dividend Bank Portfolio Back up funding Group Treasury Cash & FX Management Contract & Counterpart Risk Credit Risk Management Treasury IT One platform Cash & CAPEX Currency hedge Advisory & Consult. Credit risk assesment Credit & Counterpart requests New Markets /Currencies Contracts Liquidity Forecast LEGO Group Expansion New Countries New Products New Markets

8 A challenging business Product life cycle: 20 months 50% of the product portfolio is renewed on annual basis and account for: 65% of consumer sale 80% of production High seasonality 35% of consumer sale takes places during 3-4 weeks

9 LEGO s definition of Treasury Contract governance Credit management Risk management FX & Cash Management

10 The Treasurers Dilemma - Driven by organisational focus and changes over time Risk Management Technology/ Effeciency Cost

11 High International Growth Some Key points - Integrate with Business Strategy and - Get Buy In! - Involve all Stakeholders early - Knowledge Management - Scalability (Automation) - Be aware of the hidden risks - No fits all solution - Tender versus going with known partner

12 Where to add value? Management by Automatisation Account Receivable In House Cash Payments on Behalf Cash Pooling Intercompany loans Account Payable Treasury Risk Assessment Contractual Review Sales activities Liquidity planning Long term hedging Management by Knowledge Procurement

13 LEGO s definition of Treasury Risk management FX & Cash Management

14 Cash Management Footprint - 44 legal entities concentrated in North America, Europe and Asia Pacific DKK NOK SEK RUB CAD GBP EUR PLN,LTL,LVL USD CZK HUF CHF RON CNY KRW JPY MXN TWD HKD Established LEGO entity Planned LEGO entity Local distributor / No precense SGD AUD NZD - EUR cross border cash pool - Rest of the world covered with domestic cash pool solutions (5 exceptions) - Payments on behalf from LEGO System A/S

15 Liquidity Management & Forecasting (from today to 24 months) LIQUIDITY PLANNING - Part of Group Sales & Operations planning process - Base for FX hedging - Optimise capital structure and banking facilities 2-24 month CASH MANAGEMENT SAP based Forecast : - Cash timing - Cash currency - Cash amount 0-2 month IN HOUSE CASH - Centralization of Cash - Central control of Cash - Cash infrastructure Day 0

16 Idle cash balance reduced by 85% - IHC and Cash Management has reduced idle cash levels by 85% allowing for faster strategic investments In House Cash - Like trains on railroad tracks One global IT format with banks Country or regional infrastructure No reload of cargo Central Payemnt Center (PoB) Central PoA management Hedge and liquidity flows in accordance KIRKBI Treasury From Idle cash to strategic investment on day 4 Directing FX hedging in accordance with liquidity management Considering total cost of ownership (Front Office, Back Office, KIRKBI, Bookkeeping) 2 employees can operate this flow => Lower employee involvement => Automatisation Linking estimated future cash flow together with capital structure Settlement of all I/C items Customer payment Day 1 liquidity to cost Inform KIRKBI of and CAPEX level of excess liquidity Based on forecast Day 2 Day 3 Day4 Liquidity available for strategic investment Balance sweep to group top account FX Hedge Management Transfer to KIRKBI

17 Example : MXN Cash pool with Bank of America Merril Lynch - Daily Zero Balance sweeps - Electronic bank statements (FINSTA or MT940) - Payments on behalf from LEGO System A/S - Electronic payment files through secure channel LEGO System A/S Master Account BAML Automated ZBA Lego System A/S Electronic Disbursement Account BAML LEGO Operaciones Collection account BAML LEGO Real Estate Collection Account BAML LEGO Mexica S.A Collection Account. BAML Adm de Servicios Collection Account. BAML Manual transfer LEGO Operaciones Custom Fee Account Banorte LEGO Operaciones Payroll Account Banorte

18 ING Bank Managing Bank Relationships (Counterparty Risk) Core Principles LEGO Banking Group Partnerships (strengths fit LEGO needs) Strong LEGO Knowledge Bank of America Assigned credit lines Shadow Counterpart and changeover time One global communication format Market Group Asia Treasury Market Group Americas/ Pacific SEB Small fish in big bowl or big fish in small bowl? Keep the Cash Infrastructure running at all times Global Supply Chain Market Group Europe Ongoing evaluation by (Bank) Balanced Scorecard Price Performance User satisfaction / Response time Financials Nordea Bank

19 LEGO s definition of Treasury Contract governance Risk management

20 Contract Governance - Interdependence of roles and responsibility Group Treasury WACC Global Procurement Bank guarantees Prepayment Vendors Payment Security Governance Dividend Cash Flows Leasing New entities Power of Attorney Contracts Letter of Credit M & A Rental contracts Global Sales Legal Department

21 LEGO s definition of Treasury Credit management Risk management

22 Credit Risk Assesment Customer relationship Financial analysis Risk Calculation/ Portfolio simulation Complete Risk Overview

23 Credit Risk Assessment - Probability on cash flows Approach: Portfolio view on credit risk Customer Intelligence Financial Analysis Payment Track Record Monte Carlo Simulation based on: Risk Scores assigned to each counterpart Outstanding peak volume Number of credit days Allowing for correlated risk Impact from Credit Risk Insurance Did you know? Over the years apx 4 billion minifigures has been produced making it the worlds biggest population group

24 Wrap up - From uncertainty to accepted risk Contract Credit Risk Manage ment Liqiodity / FX ID Process Impact Cash Flow & FX In House Cash & Liquidty Forecast Net Cash & FX Exposure Customers & Vendors Counterpart knowledge Fin. Analysis Monte Carlo simulation Aggregated Risk Accepted Risk Comm. Risk Legal Risk Financial Risk Corporate Governance Structure Standardisation

25 Wrap up - The Science is in the Bricks! When a process is defined and impact quantified then automate Map where Treasury adds value to the business Become a partner but remember stewardship role (transparency and openess is key) Treasury Contract Review Change Management Balanced Scorecard 24 Months Forescast Credit Risk Assesment Market Risk Analyser In House Cash Hedge Planning Credit Management

26 Questions?

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