World Financial Symposium

Size: px

Start display at page:

Download "World Financial Symposium"

Allyson Douglas
6 years ago
Views:

1 World Financial Symposium September 2017 Convention Center Dublin (CCD) Ireland World Financial Symposium 2014 World Financial Symposium 2017

2 Financial Risk Management Delivering the Edge World Financial Symposium 2014 World Financial Symposium 2017

3 efx Solutions : Paving the Future of Corporate FX Risk Management Paul O Reilly Director, efx Solutions, Citi World Financial Symposium 2014 World Financial Symposium 2017

4 Citi FX & Local Markets efx Corporate Solutions efx Solutions Paving the Future of Corporate FX Risk Management Paul O Reilly, Director efx Corporate Solutions, EMEA September 2017

FX Risk in the Airline Industry Currency

Diesel Components & Maintenance Aircraft

5 FX Risk in the Airline Industry Currency Risk Risk in the Industry are driven by Oil and Aircrafts on the cost side and ticketing on the revenue side Jet Fuel Diesel Components & Maintenance Aircraft Leasing Purchase USD Risk Currency Hedging Strategy Non USD functional Airlines focus on hedging Jet fuel and USD Risk. USD functional airlines focus on Jet fuel and Ticketing. Complex Hedging Earnings Exotic & Hybrid Options Online MCP Systematic and and Strategic Layering Cash Flow Systematic Local Risk Ticketing Operations No Hedging Forwards Forwards, Options Ad Hoc 6

6 FX Risk Management Assessment, Objectives, and Methodology Best-in-Class firms are assessing their FX risk on a daily basis and using a centralized decision making and execution process. FX Risk Assessment and Practices FX Risk Management Objectives Methodology, Reporting, and Quantification Assesses FX risk 94% Reduce risk to transactional cash flows 41% Notional amounts of exposure 70% 75% 97% 38% 42% Sensitivity Analysis 71% 9% 48% Assessments performed at least monthly Reduce risk to translated FX earnings 76% 10% 17% VaR 20% 81% 50% Centralized decision-making and execution 79% Reduce risk to both cash flows and earnings 52% Other 7% 9% Industrials Universe 7 Source: Citi Treasury Diagnostics, January 2013 June 2017

7 FX Risk Management Hedging Approach and Instruments Types of Risks Hedged 75% or More Forecasted Exposures Hedged 67% 80% Universe Industrials 0-3 Months 45% 44% 53% 49% 3-6 Months 28% 27% 6-12 Months 19% 22% 23% 15% 14% 11% 11% 17% 16% 15% Months 11% 14% Months 8% 11% Forecasted FX-denominated exposures Net monetary FXdenominated assets & liabilities Net investment in foreign operations Earnings translation Contingent risk, incl bid-toaward risk or M&A Other Greater than 36 Months 7% 11% Policy Permitted Financial Instruments Approach to Hedging Forecasted Cash Flows 88% 88% 82% 85% 83% 77% 47% 50% 19% 20% 25% 30% 22% 19% 23% 20% 12% 11% Spot Forwards Swaps Options Static Hedging Rolling Hedging Layered Hedging Opportunistic Hedging Other Industrials Universe 8 Source: Citi Treasury Diagnostics, January 2013 June 2017

8 FX Risk Management What are Corporates telling us? Observations Continued centralisation of Treasury Risk Management Limited direct reaction to USD movements EM Risks are not being treated differently from G10 Shift from notional risk quantification to sensitivity-based analysis Preference for layered hedging programs up to 6 months Increased usage of Treasury Management Systems 9

FX Risk Management Automation : Why now? Best-in-Class firms are assessing their FX risk on a daily basis and using a centralized decision making and execution process.

9 FX Risk Management Automation : Why now? Best-in-Class firms are assessing their FX risk on a daily basis and using a centralized decision making and execution process. The Rise of Treasury Management Systems TMS systems are now broadly used 100% 80% 60% 85% 87% 87% 78% 81% 75% 66% 73% A Broad Range of Functionality now available 50% of TMS systems for cash management and FX 40% 20% 12% 0% Degree of Formalized Assessment of Liquidity / Funding Risk Degree of Centralization in Risk Management Use of a Treasury Management System Stage 4 STP with Auto-hedging Stage 3 STP with Auto-execution Client Evolution Stage 2 Platform with STP Stage 1 Platform Only Stage 0 - Voice 10 Source: Citi Treasury Diagnostics, January 2013 June 2017 and Deloitte 2015

10 FX Risk Execution What does the future hold? New technologies allied to increased instance of Global ERP/TMS systems allow companies to develop systematic Risk Management execution strategies Direct System Integration - API links between TMS and 3 rd Party vendors/bank counterparties - automated application of Rules Based execution, focused on appropriate channel for appropriate flow - automated application of Rules Based hedging strategies - full end-to-end STP - visibility and control with enhanced process efficiency MCP : Multi Currency Pricing - create localized customer experience alongside country/language - drive increased sales with reduced cart abandonment - risk free ancillary revenue stream - fully automated STP with no manual intervention - little on-going maintenance required 11

11 12 IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or relied upon, by you for the purpose of avoiding any tax penalties and (ii) may have been written in connection with the "promotion or marketing" of any transaction contemplated hereby ("Transaction"). Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor. In any instance where distribution of this communication is subject to the rules of the US Commodity Futures Trading Commission ("CFTC"), this communication constitutes an invitation to consider entering into a derivatives transaction under U.S. CFTC Regulations 1.71 and , where applicable, but is not a binding offer to buy/sell any financial instrument. Any terms set forth herein are intended for discussion purposes only and are subject to the final terms as set forth in separate definitive written agreements. This presentation is not a commitment to lend, syndicate a financing, underwrite or purchase securities, or commit capital nor does it obligate us to enter into such a commitment, nor are we acting as a fiduciary to you. By accepting this presentation, subject to applicable law or regulation, you agree to keep confidential the information contained herein and the existence of and proposed terms for any Transaction. Prior to entering into any Transaction, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting characterizations and consequences of any such Transaction. In this regard, by accepting this presentation, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any Transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice (and any risks associated with any Transaction) and our disclaimer as to these matters. By acceptance of these materials, you and we hereby agree that from the commencement of discussions with respect to any Transaction, and notwithstanding any other provision in this presentation, we hereby confirm that no participant in any Transaction shall be limited from disclosing the U.S. tax treatment or U.S. tax structure of such Transaction. We are required to obtain, verify and record certain information that identifies each entity that enters into a formal business relationship with us. We will ask for your complete name, street address, and taxpayer ID number. We may also request corporate formation documents, or other forms of identification, to verify information provided. Any prices or levels contained herein are preliminary and indicative only and do not represent bids or offers. These indications are provided solely for your information and consideration, are subject to change at any time without notice and are not intended as a solicitation with respect to the purchase or sale of any instrument. The information contained in this presentation may include results of analyses from a quantitative model which represent potential future events that may or may not be realized, and is not a complete analysis of every material fact representing any product. Any estimates included herein constitute our judgment as of the date hereof and are subject to change without any notice. We and/or our affiliates may make a market in these instruments for our customers and for our own account. Accordingly, we may have a position in any such instrument at any time. Although this material may contain publicly available information about Citi corporate bond research, fixed income strategy or economic and market analysis, Citi policy (i) prohibits employees from offering, directly or indirectly, a favorable or negative research opinion or offering to change an opinion as consideration or inducement for the receipt of business or for compensation; and (ii) prohibits analysts from being compensated for specific recommendations or views contained in research reports. So as to reduce the potential for conflicts of interest, as well as to reduce any appearance of conflicts of interest, Citi has enacted policies and procedures designed to limit communications between its investment banking and research personnel to specifically prescribed circumstances. [TRADEMARK SIGNOFF: add the appropriate signoff for the relevant legal vehicle] 2017 Citigroup Global Markets Inc. Member SIPC. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world Citibank, N.A. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world Citigroup Inc. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world Citigroup Global Markets Limited. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world Citibank, N.A. London. Authorised and regulated by the Office of the Comptroller of the Currency (USA) and authorised by the Prudential Regulation Authority. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world [Name of Legal Vehicle] [Name of regulatory body.] All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world. Citi believes that sustainability is good business practice. We work closely with our clients, peer financial institutions, NGOs and other partners to finance solutions to climate change, develop industry standards, reduce our own environmental footprint, and engage with stakeholders to advance shared learning and solutions. Citi s Sustainable Progress strategy focuses on sustainability performance across three pillars: Environmental Finance; Environmental and Social Risk Management; and Operations and Supply Chain. Our cornerstone initiative is our $100 Billion Environmental Finance Goal to lend, invest and facilitate $100 billion over 10 years to activities focused on environmental and climate solutions.

12 Financial Risk Management Do you have a grip on your financial risks? Panel Discussion World Financial Symposium 2014 World Financial Symposium 2017

13 The Panel Liam Ó Caoimh, Director at Zanders Teresa Lopes, VP Finance at TAP Portugal Paul O Reilly, Director efx Solutions at Citi Oksana Pidkuyko, Regional Head, Commodities Structuring at Standard Chartered World Financial Symposium 2017

14 Trends and Developments World Financial Symposium 2017

15 Major Airline # 1 Major Airline # 2 Risk Management Framework Governance Std. RM Process Principles, Policies, Guidelines Reporting World Financial Symposium 2017

16 FRM Framework 1. Identification 2. Measurement 3. Policy 4. Process 5. Execution It provides an organisation with a mechanism to develop an overall approach to manage risks. To manage in a proactive, integrated and strategic manner. And it s a recurring process and needs to be reviewed by executive management periodically. World Financial Symposium 2017

17 FRM Framework - The building blocks Policy Process / R&R Structure Reporting / Systems TRC / Oversight Hedging Strategy World Financial Symposium 2017

18 Polling questions SLIDO.com #WFS World Financial Symposium 2014 World Financial Symposium 2017

19 Polling Question 1 Do you have a formalized FRM framework in place? Answers: Yes No Kind of...! World Financial Symposium 2017

20 Polling Question 3 How frequently do you review your risk management and hedging policy? Answers: Annually Every 2 years Every 5 years When a new Treasurer or CFO comes on board Rarely World Financial Symposium 2017

21 Polling Question 4 Which types of measurement tools do you use to support decisionmaking? Answers: Basic excel calculations At-Risk, quantitative models (VaR, CFaR) Qualitative information only All of the above World Financial Symposium 2017

22 Polling Question 5 When making hedging decisions? Answers: We follow a strict hedging policy that does not allow any room for market timing We follow a strict hedging policy but it allows for room for market timing within the month/quarter We time the markets based on market view We adjust our hedge based on a systematic warning signals We dynamically hedge our position World Financial Symposium 2017

23 Fuel Hedging, What s Today s Reality Romain Pasquet Price Risk Management, WFS (World Fuel Services) World Financial Symposium 2014 World Financial Symposium 2017

Jet Fuel Hedging IATA WFS Dublin, September 2017 Copyright 2016 World

26 What IATA says Fuel Hedging, what s today s reality? One thing for sure, volatility is across the board and oil prices are no exception. How can airlines find their way in today s conditions and protect their financial health for the future? How to weigh this dimension within the risk management policy? Copyright 2016 World Fuel Services Corporation. Proprietary & Confidential. All Rights Reserved. 3

A look forward: some uncertainties $/BBL 70 65 60 2018 Brent Crude Oil Price Forecast Range (Reuters) 55 50 45 40 35 OPEC does not reduce production output in response to falling prices Stock Market

32 A look forward: some uncertainties $/BBL Brent Crude Oil Price Forecast Range (Reuters) OPEC does not reduce production output in response to falling prices Stock Market Crash Brexit Supply Disruptions Election OPEC Agreement Shale Production Growth 30 Low at $27.10/bbl 25 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Copyright 2016 World Fuel Services Corporation. Proprietary & Confidential. All Rights Reserved. 9

Prudent risk management definition Risk management is the identification, assessment, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives) followed by

34 Prudent risk management definition Risk management is the identification, assessment, and prioritization of risks (defined in ISO as the effect of uncertainty on objectives) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events. Copyright 2016 World Fuel Services Corporation. Proprietary & Confidential. All Rights Reserved. 11

35 In practice for the airlines HEDGING IS: Cost control Margin protection Cash-flow management Effective budgeting Forecast instrument Review and develop regularly Identify fuel risk Analyse impact to business HEDGING IS NOT: ₓ A profit centre ₓ A tool to beat the market Monitor & control Review tools Copyright 2016 World Fuel Services Corporation. Proprietary & Confidential. All Rights Reserved. 12

How to improve your hedging efficiency? Complexity Banks credit lines utilization Basis risk Lags of physical jet contracts Which instrument? What volume? When to execute?

36 How to improve your hedging efficiency? Complexity Banks credit lines utilization Basis risk Lags of physical jet contracts Which instrument? What volume? When to execute? What impact on my accounting? What Cash-Flow to expect? How can I optimize my credit line usage? Is there an alternative to derivatives? What if I need my limited bank credit lines to run my operations? How can I hedge more efficiently when I buy fuel in so many locations? What underlying shall I use? Is there a better strategy? Physical Jet contracts pricing is lagged weekly/biweekly/monthly but a financial hedge is monthly. How could I match my hedges with my physical buying? Copyright 2016 World Fuel Services Corporation. Proprietary & Confidential. All Rights Reserved.

WFS aviation hedging experts Romain Pasquet

Mobile: +65 9117 4615 cteissedre@wfscorp.

Leak Direct line: +1 (770) 599 3162 Mobile: +1

com Fei-Feng Seet Direct line: +65 6215 6960

38 WFS aviation hedging experts Romain Pasquet Direct line: +44 (0) Mobile: +44 (0) Celine Teissedre Direct line: Mobile: Jonathan R. Leak Direct line: +1 (770) Mobile: +1 (770) Fei-Feng Seet Direct line: Mobile Copyright 2016 World Fuel Services Corporation. Proprietary & Confidential. All Rights Reserved. 15

40 Disclaimer This communication has been approved by World Fuel Capital Ltd, authorised and regulated by the UK Financial Conduct Authority This communication has been provided to you for information purposes only. This communication is not an advice or a recommendation of any kind with respect to the matters described herein, whether they consist, without limitation, of financing structures, investments, financial instruments, hedging or trading strategies or any combination of such matters or any other matters. This communication does not offer tax, accounting, legal or regulatory advice. You should conduct your own investigation and analysis of our proposition contained in the presentation. Any decision you make to invest in the investments referred to in the presentation should be made based solely on your own due diligence, legal and financial advice. None of the presentation, any part of it, or the fact of its distribution form the basis of, or are to be relied upon in connection with, any such contract. Derivative products carry certain inherent risks and may not be suitable for all clients. Before dealing in derivative products, it is your responsibility to ensure that you understand fully the nature and the extent of your rights and obligations under any arrangement you enter into and are aware of the extent of your exposure to risk.. We make no representations or warranties, express or implied, regarding the accuracy, adequacy, reasonableness or completeness of the information, assumptions, opinions or analysis contained herein, and we accept no responsibility or liability in connection therewith. No information contained herein constitutes an offer or solicitation by or on behalf of us to enter into any arrangement or strategy contractual or otherwise relating to such matters. It should not be construed as an offer of any kind or the solicitation of an offer to buy in any state or jurisdiction to any person to whom it is unlawful to make such an offer or solicitation. This presentation is for distribution in the United Kingdom (UK) only to Eligible Counterparties and Professional Clients (as defined in the UK Financial Services Authority s rules). If you are not such a person, then you must not seek to rely on this presentation or enter into any transaction referred to in it and must return it immediately to: 8th Floor, 62 Buckingham Gate, London SW1E 6AJ Copyright 2016 World Fuel Services Corporation. Proprietary & Confidential. All Rights Reserved. 17

41 Treasury: Mitigating future financial risk Michelle Price Associate Policy & Technical Director, ACT Jeremy Tumber Head Dealing, Etihad Airways World Financial Symposium 2014 World Financial Symposium 2017

42 SYSTEMS DIAGRAM Autonomous Decision Making Fully Automated Scalable Global Solution Centrally Managed

Article 73(4) - Swiss Financial Market Infrastructure Act Costs Disclosure

Markets and Securities Services I Direct Custody & Clearing October 2017 Article 73(4) - Swiss Financial Market Infrastructure Act Costs Disclosure 1. Introduction 1.1 The purpose of this document is to