treasury & cash management

13 Pages·2013·3.61 MB·English

2013
ANNUAL SUPPLEMENT
TREASURY & CASH
MANAGEMENT
TREASURY & CASH MANAGEMENT | 2013
Cash Is
(Still) King
02
Global Finance Cash 25: The more things change, the more they stay the same. A cliché, to be sure, but one
Ranking The Top Global Public that rings true right now for corporate treasury & cash management. Companies
Companies By Cash continue to hold on to cash, as is abundantly clear in our first-ever global cash
survey—the Global Finance Cash 25—and this trend seems unlikely to change anytime
08 soon. But holding of on investment to await a change in the macroeconomy creates
something of a catch-22: Companies are waiting for consumer spending to increase in
order to invest, but consumer spending is unlikely to increase in any meaningful way until
Best Practice: companies start to invest—not only to give consumers reason to believe it is safe to spend,
Payables And Receivables but also to increase the liquidity in the market that is available for spending.
Having said that, in certain developed markets companies appear to have begun to
12 invest some of their cash piles, which could be the kick start that is needed to get global
economies moving again.
In the meantime, corporates are trying to make the best use of the cash that they do
Liquidity & Investment have, which is a key theme of this year’s Treasury & Cash Management supplement.
Management: Whether investing it—generally still in safe, low-risk securities and investments—keeping
Sticking To The it in bank accounts, bringing it back to home markets from abroad or safeguarding it in
Straight And Narrow those markets, treasurers are tasked with ensuring that cash is kept secure while still
creating value for the company. On the flipside, treasurers are still trying to ensure that
14 financial operations are run as seamlessly and efficiently as possible to minimize working
capital usage within those processes. The treasurer has long worn many hats, and the
collection is only growing.
CFO Interview:
Nick Fanandakis, DuPont
Denise Bedell
18
Managing editor
Global Finance
Who’s Who In Treasury [email protected]
& Cash Management @DeniseBedellGF
11
TREASURY & CASH MANAGEMENT | GLOBAL FINANCE CASH 25
What’s Up With TOP 10 COMPANIES BY LONG-TERM
MARKETABLE SECURITIES
†Long-Term
Company Country Marketable
Securities ($mn)
1 APPLE US 92,122,000
Corporate Cash?
2 SONY Japan 75,608,117
3 TOYOTA MOTOR Japan 54,982,285
4 GENERAL ELECTRIC US 48,510,000
5 FORD MOTOR US 36,735,000
Among various explanations for corporations’ 6 MITSUBISHI Japan 27,128,636
letting cash build up on their balance sheets, 7 NSUIPMPIOTNO MSOTE MELE T&A L Japan 19,391,025
8 SIEMENS Germany 16,830,980
the most compelling one is that economic
9 QUALCOMM US 14,463,000
growth is still slow. But some companies are 10 PFIZER US 14,149,000
Total 399,920,043
not waiting for growth to pick up in order to †Includes equity and debt holdings and other
salable investments maturing in a year or longer
spend more aggressively. By Ronald Fink Data valid as of July 18, 2013.
Cash continues to build on corporate companies to spend with any urgency. In METHODOLOGY
balance sheets because of, and fact, the Global Finance Cash 25—the 25 The Global Finance Cash 25 ranks global
public companies by cash, cash equi-
perhaps also despite, the anemic public companies worldwide with the most
valents and short-term securities on their
global economy. This paradoxical possibility cash, cash equivalents and short-term invest- balance sheets. Data is gathered from
more than 70,000 public companies
stems from market conditions that generate ments on their balance sheets—saw those
worldwide. It is a ranking of nonfinancial
positive corporate cash flow without inspiring figures rise by 7.9% in their most recent fiscal corporations—we exclude banks and other
financial institutions from the rankings.
TOP 25 GLOBAL PUBLIC COMPANIES BY CASH ON BALANCE SHEET
Company Country RepLoarYtteienasgrt Cash* $(mn) PreC$va(Yimoseuhans*r) ChC(aaYnsoghYe*) ORpeevr(a$etmninunge) Total A(s$sments) Capex ($mn) R&D Exp($emnsne)
1 GENERAL ELECTRIC United States 2012 77,356 84,501 -7,145 147,359 685,328 15,126 4,500
2 MICROSOFT United States 2013 77,022 63,040 13,982 77,849 142,431 4,257 10,411
3 PETRONAS Malaysia 2011 50,595 47,730 2,866 71,659 150,334 n.a. 10
4 CISCO SYSTEMS United States 2012 48,716 44,585 4,131 46,061 91,759 1,126 5,488
5 TOYOTA MOTOR Japan 2011 35,795 42,223 -6,428 226,216 373,110 18,650 9,492
6 PFIZER United States 2012 32,708 26,452 6,256 58,986 185,798 1,327 7,342
7 ORACLE United States 2013 32,216 30,676 1,540 37,180 81,812 650 4,850
8 APPLE United States 2012 29,129 25,952 3,177 156,508 176,064 8,295 3,381
9 AMGEN United States 2012 24,061 20,641 3,420 17,265 54,298 689 3,330
10 TOTAL France 2012 22,471 19,053 3,418 240,677 226,711 26,263 1,062
11 CHEVRON United States 2012 21,913 20,071 1,842 241,909 232,982 30,938 1,728
12 JOHNSON & JOHNSON United States 2012 21,089 32,261 -11,172 67,224 121,347 2,934 7,665
13 DAIMLER Germany 2012 19,864 14,116 5,747 152,686 215,033 6,369 5,514
14 VODAFONE Great Britain 2012 19,618 13,545 6,073 67,917 215,788 7,056 464
15 SONY Japan 2011 19,178 19,976 -798 79,041 161,846 4,657 5,843
16 CHINA STATE China 2012 18,819 14,400 4,419 87,360 103,615 1,548 n.a.
CONSTRUCTION ENGINEERING
17 SAMSUNG ELECTRONICS South Korea 2012 18,728 13,325 5,403 187,842 169,131 22,059 10,772
18 ROYAL DUTCH SHELL Great Britain 2012 18,550 11,292 7,258 467,317 360,325 32,576 1,314
19 INTEL United States 2012 18,162 14,837 3,325 53,341 84,351 11,027 10,148
20 MITSUI Japan 2011 17,484 17,433 51 63,927 109,700 4,435 41
21 THE COCA-COLA COMPANY United States 2012 16,551 14,035 2,516 48,017 86,174 2,780 n.a.
22 MERCK United States 2012 16,141 14,972 1,169 47,267 106,132 1,954 7,911
23 RENAULT France 2012 16,056 12,830 3,225 55,671 99,501 3,756 1,484
24 MITSUBISHI Japan 2012 15,893 16,900 -1,007 63,396 153,061 6,139 57
25 FORD MOTOR United States 2012 15,659 17,148 -1,489 134,252 190,554 5,488 5,500
Total 703,774 651,994 51,780
*Includes cash, cash equivalents and short-term securities (those maturing between three months and a year) Data provided by:
Data valid as of July 31, 2013. Companies where latest reporting year was prior to 2011 were excluded from the list. Orbis by Bureau van Dijk
2
TREASURY & CASH MANAGEMENT | GLOBAL FINANCE CASH 25
year, according to data compiled for Global Even J&J’s decline in cash reflects cau- REGIONAL TOP 10 PUBLIC
Finance by research firm Bureau van Dijk. tion about growth prospects. A spokes- COMPANIES BY CASH ON
Not every cash-rich company got even man for J&J noted that returning cash to BALANCE SHEET
richer in their latest reporting year. Exxon shareholders is a distant third among the
NORTH AMERICA
Mobil, for instance, fell off the list of 25 com- company’s three priorities for capital allo-
The 10 North American companies with
panies with the most cash and equivalents cation, after M&A and reinvestment in the the most cash on balance sheet are all US-
(before including short-term investments, business. Capital investment by J&J last based. GE and Microsoft top the list, though
their cash is moving in opposite directions.
which are defined as those maturing in three year was flat, while R&D inched up from
The rest of the top 10 are dominated by
months to a year) after a $3.1 billion, or $7.5 billion in 2011 to $7.7 billion in 2012. tech and pharma companies, with Johnson
10.6%, increase in capital spending in 2012, & Johnson the only one to see cash decline
in its most recent year—the result of a big
which reduced its cash and equivalents to TECHNOLOGY CASH PILES GROW
stock buyback.
$9.6 billion from $12.7 billion in 2011. Exxon Within the tech sector—another industry
alsAon pda iad fdeoww ont ihtse rd ceobmt bpya $n3ie sb ilolionn t.h e list tmhaots dt ocmasinha otens t htheeir libsat loafn ccoem sphaeneitess— wAitphp thlee, Company RepLoarYtteienasgrt “$C(masnh)”* Pr“eC$Yva(eimosauhnrs”*) C(hYaonYg)e
of the 25 with the biggest totals of cash, Cisco, Intel, Microsoft, Oracle and Samsung 1 GENERAL ELECTRIC 2012 77,356 84,501 -7,145
2 MICROSOFT 2013 77,022 63,040 13,982
equivalents and short-term investments— all experienced significant increases in cash,
3 CISCO SYSTEMS 2012 48,716 44,585 4,131
including Ford, General Electric, Johnson equivalents and short-term investments dur-
4 PFIZER 2012 32,708 26,452 6,256
& Johnson, Mitsubishi, Sony and Toyota— ing their most recent year. Notably, Apple
5 ORACLE 2013 32,216 30,676 1,540
also saw declines in their most recent year also has $92.1 billion invested in long-term
6 APPLE 2012 29,129 25,952 3,177
(the most recent reporting year is 2011 instruments such as corporate equities and
7 AMGEN 2012 24,061 20,641 3,420
for Japanese companies, as they haven’t bonds and Treasuries maturing in more than 8 CHEVRON 2012 21,913 20,071 1,842
reported their 2012 results yet). one year. That’s more than three times as 9 JJOOHHNNSSOONN & 2012 21,089 32,261 -11,172
But those companies are exceptions to much as Apple holds in cash, equivalents
10 INTEL 2012 18,162 14,837 3,325
the general rule as well as to trends in their and short-term securities, and over $16.5
Total 563,449 523,828 39,621
industries. In the US, cash still exceeds billion more than any other company. The
normal levels by about 30%, according to inclusion of long-term securities in calculat-
a recent study by the Georgia Institute of ing cash accounts for the $130 billion to WESTERN EUROPE
The 10 Western European companies with
Technology, which found that cash, cash $150 billion (depending on the source) that
the most cash on their balance sheets
equivalents and short-term investments cur- Apple is often cited in the press as having saw that sum increase by 22% in their
rently equal 13% of revenues. While that’s in “liquid assets” (see table: Top 10 Global most recent year. Telefónica of Spain led
the increase, with a 77% rise, to $15.5
down from 16% at the height of the financial Companies By Long-Term Marketable
billion from $8.7 billion. Others that saw
crisis, it’s still three full percentage points Securities, page 2). big increases were Royal Dutch Shell,
above the 10% level before the crisis. Cash Not that technology companies are just with a 64% increase, Vodafone, with a
45% increase, and Daimler, with a 41%
for the 25 global companies with the most sitting on their cash. Intel, for example, has
increase. The only companies on the list
as of the recent fiscal year averaged more dramatically increased both capital spend- that experienced declines were Siemens
than 27% of revenues, and that includes ing and research and development during
non-US companies that usually tend to hold the past two years. This tack is in keeping Company Country RepLoarYtteienasgrt C$a(mshn*) PreC$va(Yimoseuhans*r) C(hYaonYg)e
less cash than do US ones. with the company’s belief that “you invest
1 TOTAL France 2012 22,471 19,053 3,418
In contrast to Ford, the cash positions of through a recession” so as to emerge in
2 DAIMLER Germany 2012 19,864 14,116 5,747
non-US automakers Daimler and Renault, a stronger position—a stance held by the
also on the list of the 25 global companies company since it was first pronounced by 3 VGORDOAUFPO NE GBrreitaati n 2012 19,618 13,545 6,073
with the most cash, equivalents and short- its founder Gordon Moore, and reiterated in 4 RDSHOUYETACLLLH GBrreitaati n 2012 18,550 11,292 7,258
term securities, increased by $5.7 billion an interview with Global Finance by Intel vice
5 RENAULT France 2012 16,056 12,830 3,225
and $3.2 billion, respectively, in 2012. For president and treasurer Ravi Jacob.
6 TELEFÓNICA Spain 2012 15,462 8,747 6,715
its part, Ford boosted its capital spending The practical application of this stance
7 SIEMENS Germany 2012 14,760 17,480 -2,720
by roughly 25% last year, to $5.5 billion from is borne out by the fact that Intel’s capital
8 NOKIA Finland 2012 12,526 13,546 -1,019
$4.3 billion, helping drain $1.5 billion of the expenditures (“capex”) in 2012 of $11 billion
9 ERICSSON Sweden 2012 11,793 11,694 99
cash on its balance sheet in 2012. had risen to twice its 2008 level. Despite the 10 TITEALLEIAC OM Italy 2012 11,468 10,588 880
Similarly, cash at three pharmaceutical increased spending, Intel’s cash increased
Total 162,567 132,890 29,677
giants among the top 25—Amgen, Merck by $3.4 billion in 2012, to $18.2 billion from
and Pfizer—also advanced, while Johnson $14.8 billion in 2011. *Includes cash, cash equivalents and short-term securi-
ties (those maturing between three months and a year)
& Johnson’s cash declined, primarily as a Although Exxon also increased capex and Data valid as of July 31, 2013.
Companies where latest reporting year was prior to 2011
result of a $10.5 billion stock repurchase. repaid debt—and saw its cash on balance were excluded from the list.
4
TREASURY & CASH MANAGEMENT | GLOBAL FINANCE CASH 25
REGIONAL TOP 10 CONTINUED
CENTRAL & EASTERN EUROPE sheet decline—other energy companies University of Alberta, contends that the latter
Cash varied greatly for those making our top among the top 25, such as Chevron, Royal explanation makes the most sense, since
10 list in CEE. While cash at Acron Group of
Dutch Shell, Petronas and Total, all saw their the only condition behind such rationales
Russia more than trebled, that at Russia’s
Svyazinvest fell by 39%. There was also cash move in the opposite direction. that is different than it was before the onset
wide variation in the totals, with $12.2 billion Among industrial conglomerates on the of the financial crisis is a shortfall in demand.
in cash at the top company, Surgutneftegas
list with big finance subsidiaries, which natu- “It’s the only thing that has changed,”
of Russia, exceeding the $536 million at the
bottom company, Russia’s Rosoboronexport, rally require a lot of cash, GE is an interesting McLean observes.
by more than 20 times. exception to the trend. Though the company But even some observers who agree
topped the list with $77.4 billion in cash, that that companies are sitting on cash for pre-
Company Country RepLoarYtteienasgrt C$a(mshn*) PreC$va(Yimoseuhans*r) C(hYaonYg)e total was down by more than $7 billion from cautionary reasons say macroeconomic
2011, or more than 9%, as the company has conditions aren’t primarily responsible.
1 SNUEFRTGEUGTA-S Russia 2012 12,154 12,416 -262 sought to shrink its finance subsidiary in rela- A paper recently published by the highly
RUSSIAN tion to its industrial business. Sure enough, regarded Ohio State University finance
2 HSTIGAHTEW AYS Russia 2012 1,813 1,439 374 GE’s capital spending increased by almost professor René Stulz and two colleagues
COMPANY
3 URALKALI Russia 2012 1,666 1,018 648 $2.5 billion last year, or almost 20%, while argues that companies hold more cash than
4 AGCRROOUNP Russia 2012 1,633 465 1,168 total assets declined by 5%. necessary to fund their operations primar-
There are several theories as to why cash ily because they increasingly believe their
5 INTER RAO Russia 2012 1,582 1,352 230
at other companies continues to increase. competitive advantage lies in intangible
MOL
6 MOLAAGJY-A ERS Hungary 2012 1,574 1,293 281 In the case of the US multinationals, some assets, which are most often the product
GAZIPARI experts cite their aversion to domestic taxa- of research and development. And using
7 SINVVYEASZT- Russia 2010 723 1,185 -462 tion at rates as high as 35%, if and when internal cash to fund R&D is cheaper than
GUP they bring the money home from foreign using outside funding. The academics’
8 MMOETSRKOO-VSKY Russia 2011 652 235 416 subsidiaries, and so, the thinking goes, reasoning: External financing is more expen-
POLITEN
they keep cash earned abroad stashed in sive for R&D than it is for capital spending,
9 NOVATEK Russia 2012 606 740 -134
banks but squarely on their balance sheets. because R&D, although more valuable, is
ROSO-
10 BORON- Russia 2011 536 1,088 -553 That, in fact, may be one reason why US more risky. “A detailed analysis shows that
EXPORT
Total 22,404 20,143 2,261 companies generally hold more cash than the increase in cash holdings of multina-
companies based elsewhere. tional firms is intrinsically linked to their R&D
LATIN AMERICA
Other experts say global firms are hold- intensity,” Stulz and his co-authors wrote.
The Curaçao-domiciled holding company
ing big cash reserves to help make acquisi- That view seconds one voiced in the
of global group Schlumberger tops the list
in Latin America, doubtless reflecting the tions, so as to build market share or scale. November 2003 issue of the Harvard
island’s tax-haven status (see cover story, Regardless of the rationale for M&A, share- Business Review by Richard Passov,
page 16). The list includes three other
holders can be expected to demand at least then-treasurer of Pfizer. He and his fellow
firms in the tax havens of Bermuda and the
Cayman Islands: Marvell Technology Group, some of these companies’ cash back sooner researchers concluded that the decision to
and two Chinese holding companies, Yingli or later in the form of dividends or stock run large cash balances was “one of the
Green Energy and Greentown China.
repurchases if acquisitions do not material- key factors in sustaining the value of their
Company Country RepLoarYtteienasgrt C$a(mshn*) PreC$va(Yimoseuhans*r) C(hYaonYg)e izeS otril lc orethateer mexupcehr tvsa lsuaey. the reason many ian tsaunbgsibtalen taiasls petosr—tiown hoicf ho vtyepraiclla vllay lcuoatmiopnrsis.”e
1 SBCERHGLUERM - Curaçao 2012 6,274 4,827 1,447 companies aren’t reinvesting the money, Interestingly, the era in which Passov
either through M&A, capital spending or wrote his article closely followed one in
2 TELEMAR Brazil 2012 3,842 7,377 -3,534
research and development, but remain which many companies favored the use of
YINGLI
3 GENREERENG Y CIsalaynmdasn 2012 3,052 892 2,160 reluctant to return it to shareholders is that debt, over cash, to finance acquisitions and
HOLDING they simply don’t want to admit they lack suf- investment—only to see a major backlash
4 EMBRAER Brazil 2012 2,380 2,123 257
ficient growth prospects to justify spending against leverage in the wake of the col-
5 FEMSA Mexico 2011 2,013 2,210 -197
the money—in effect, signaling to investors lapse of Enron and other heavily indebted
MARVELL
6 TNEOCLHO-GY Bermuda 2012 1,919 2,246 -328 that they’re no longer growth companies. companies. Almost 10 years later, corpo-
GROUP And still others say companies holding rate finance circles have yet to witness a
7 GTERLUEPVOIS A Mexico 2012 1,874 1,558 316 significant amounts of cash are exhibiting comeback of the “cash is trash” mentality.
8 ULTRAPAR Brazil 2012 1,474 1,457 18 caution in light of weak demand for their With $33 billion in cash on its balance
9 GCHHROEILNEDANIN TGOSWN CIsalaynmdasn 2012 1,256 971 285 products and services. schaeshet hino ld2i0n1g2s, aPmfizoenrg n tohwe troapnk 2s5 s igxltohb ianl
10 BRF Brazil 2012 1,249 1,474 -224 WAITING FOR A GREEN LIGHT companies. But it ranks first in fixed assets
Total 38,001 35,902 2,099 David McLean, a professor of finance at the to capital spending, showing that its focus
6
REGIONAL TOP 10 CONTINUED
is on research and development instead. Many analysts and regulators think banks in ASIA-PACIFIC
Intel’s Jacob lends further support to the Europe and the US still need more capital The Top 10 in Asia-Pac saw only a 4%
overall increase in their total during their
idea that big R&D requirements dictate lots to shore themselves up. Siemens did not
most recent year. Several companies saw big
of cash. He points out that Intel learned that respond to a request for comment. declines. Honda had the biggest percentage
the hard way back in the early 1980s, when And US glassmaker Corning was so decrease, with a 15.6% reduction, to
$12.8 billion from $15.2 billion, followed by
a lack of cash and high potential outside worried about what might happen to
Toyota, with a 15.2% decline, Mitsubishi, with
financing costs for research and develop- short-term interest rates in the US during a 5.9% decline, and Sony, with a 4% decline.
ment led it to turn to its biggest customer, the congressional debate over the federal
IBM, for an infusion of equity to help fund debt ceiling in the summer of 2011 that it Company Country RepLoarYtteienasgrt C$a(mshn*) PreC$va(Yimoseuhans*r) C(hYaonYg)e
innovation. IBM later sold its Intel shares at withdrew a significant amount of cash from
1 PETRONAS Malaysia 2011 50,595 47,730 2,866
a profit, but Jacob says Intel doesn’t want money market funds holding Treasury secu-
to put even a sliver of its destiny in a cus- rities and deposited it in US banks. Sure 2 TMOOYTOOTRA Japan 2011 35,795 42,223 -6,428
tomer’s hands again, however much their enough, Washington, DC, seems poised for 3 SONY Japan 2011 19,178 19,976 -798
CHINA STATE
interests may align. a fresh round of debate about the debt ceil- 4 CTIOONNS ETNRGUIC-- China 2012 18,819 14,400 4,419
Still, some observers contend the theory ing, even as US president Barack Obama NEERING
ttohwata ordu tkseideep inRg& mD ofirnea cnacsinhg o cno tshtes bmalialitnactee ante wpr einsvse stitmmee nwt ains ifnofcraussterudc otunr ep, rroemseoatrincgh 5 SETRLAEOMCNS-IUCNSG SKoouretha 2012 18,728 13,325 5,403
sheet holds little water in the prevailing envi- and education—while offering recalcitrant 6 MITSUI Japan 2011 17,484 17,433 51
ronment. Charles Mulford, an accounting Republicans a deal on business tax cuts, 7 MITSUBISHI Japan 2012 15,893 16,900 -1,007
professor at the Georgia Institute of including a lower rate on corporate income 8 SOFTBANK Japan 2012 14,592 12,426 2,166
Technology, says he doubts that companies but a minimum rate on repatriated cash. 9 RINEDLUIASNTCREIE S India 2011 13,274 10,039 3,235
are much concerned about financing costs at In any case, caution on the part of most 10 HMOONTODRA Japan 2012 12,811 15,181 -2,370
present, when such costs are at historic lows. companies makes those such as Exxon,
Total 217,169 209,633 7,537
Ford, GE and Intel stand out. But if that
BE LEADERS, NOT FOLLOWERS also makes this less-cautious quartet lonely,
MIDDLE EAST/AFRICA
With those costs in mind, Intel issued $6.2 the chipmaker, for one, doesn’t mind. Then Changes in cash among the Middle East and
billion in senior notes last year, not to fund again, it may have little choice. Africa’s top 10 varied widely. Cash at Israel’s
Teva Pharmaceuticals and Israel Electric
innovation so much as to finance a stock Intel readily admits it missed the tech-
more than doubled, while Ooredoo of Qatar
buyback, Intel’s Jacob reports, adding that nology industry’s recent embrace of mobile saw its cash fall by 29%, to $4.1 billion from
low financing costs made such a transac- devices and tablets, while the PC business $5.8 billion, and that of South Africa’s Sasol
tion especially compelling in comparison stagnated, as evident in the company’s
with the tax cost of repatriating foreign most recent quarterly decline in both reve- Company Country RepLoarYtteienasgrt C$a(mshn*) PreC$va(Yimoseuhans*r) C(hYaonYg)e
cash for that purpose instead. Apple made nue and earnings from year-earlier levels. To
headlines earlier this year for using a similar catch up, Jacob says, the company must 1 O(QOTREELD)OO Qatar 2012 4.123 5.838 -1.715
TEVA
tactic to fund a $25 billion share buyback. spend freely to develop new manufacturing 2 PHARMA- Israel 2012 2,879 1,096 1,783
CEUTICAL
Yet if McLean and Mulford are right that technology despite an uncertain economy.
METRO-
macroeconomic conditions must change Unlike many companies, Intel’s treasurer 3 PHOEALILTTAHN SAofruictha 2012 2,067 n.a. n.a.
before corporate caution gives way, this notes, it deals with changing macro condi- HOLDINGS
creates a fundamental problem. Companies, tions not by ramping up or cutting back 4 TASNEE SAaraubdiia 2012 1,722 1,236 485
paradoxically, may have to lead the charge in spending on R&D or capital investment but
increasing spending—rather than being fol- by slowing or accelerating stock buybacks. 5 SASOL SAofruictha 2012 1,606 2,162 -556
CHECK POINT
lowers and waiting on increased spending by (The 87 cents per share that Intel pays out 6 STEOCFHTW-ARE Israel 2012 1,503 1,360 144
consumers before they start to invest some to shareholders in dividends involves a less NOLOGIES
of their cash pile—to fuel the very demand easily modified commitment, Jacob notes.) ISRAEL
7 AEROSPACE Israel 2012 1,331 1,619 -288
they would like to see. The likelihood of such Stock buybacks in that sense are the INDUSTRIES
Keynesian economic bootstrapping is not “dial” that the company uses to manage 8 NASPERS SAofruictha 2011 1,281 1,306 -25
high, however. cash as conditions change, says Jacob. THE ISRAEL
9 ELECTRIC Israel 2012 1,112 495 616
Jeff Wallace, a principal in consulting firm “That’s how we modulate it.” CORPORATION
Greenwich Treasury Advisors, notes that GE’s Only time will tell if the unfashionable 10 ZAIN Kuwait 2012 1,086 1,474 -389
German rival, Siemens, grew so concerned boldness of Intel and of its few fellow big Total 18,709 9,653 9,056
during the financial crisis about the solvency spenders pays off. For now, their more *Includes cash, cash equivalents and short-term securi-
ties (those maturing between three months and a year)
of its bank counterparties that it put €5 billion numerous and cautious counterparts may Data valid as of July 31, 2013.
Companies where latest reporting year was prior to 2011
on deposit with the European Central Bank. be content to wait and see. n were excluded from the list.
7
TREASURY & CASH MANAGEMENT | PAYABLES AND RECEIVABLES
In The Driver’s Seat
Companies taking a best-practice approach to AP and AR
management are seeing big cost savings and much-improved cycle
times. But revamping processes is no mean feat. By Hilary Johnson
Like other former back-office finan- as well, which has a more direct impact on minimum. It’s not just closing the books
cial processes, accounts payable and cash flow. For this reason, AP and AR per- anymore. You have to be able to help your
accounts receivable have come to sonnel have become strategic partners with company manage that activity.”
the fore in recent years to take a place of the whole finance organization, says Nicole Best practices in accounts payable and
prominence within the broader scope of Tranchitella, managing director, finance accounts receivable, for many compa-
supply chain and working capital manage- and enterprise performance consulting at nies, involves first taking a close look at
ment. That’s because accounts payable (AP) Accenture. the books, to understand, often through
and accounts receivable (AR) are critical “You have to be able to manage cash benchmarking, how much time and money
parts of the bigger financial picture, when flow to make sure that you are receiving is being spent on inefficient processes
it comes to understanding and improving the cash you deserve for the products that and technologies.
working capital and improving relation- you sold, or that you’re paying your ven-
ships with suppliers. dors when you should be paying them ACCOUNTS PAYABLE:
Knowing who is paid, how often, and and taking advantage of discounts when it LOW-HANGING FRUIT
through what method allows companies makes sense,” Tranchitella says. AP is the area usually scrutinized first,
to see just where cost savings can be real- “Having that visibility is critical for a says Martin Runow, managing director
ized. Receivables can often be streamlined finance organization. It’s almost the bare and head of cash management corporates,
8
Americas region, at Deutsche Bank, or problems that may be present—for
because payers hold the purse strings. “It’s example, when an invoice doesn’t match a
in the company’s control. It may not be purchase order.
as much as they wish, but conceptually, Many companies, especially large
they’re in control.” ones, tend to use a centralized enterprise
Some companies, even larger ones, fall resource planning (ERP) system, like
into a “laggard” camp when it comes to SAP or Oracle, and integrate it with an
AP efficiency, according to benchmarking accounts payable module to achieve the
studies. Companies that have been slow to best results, according to Aberdeen Group’s
adopt new systems and that still deal mostly findings. Those companies that achieve
with paper and spreadsheets tend to take faster processing and lower cost are 71%
a longer time to pay invoices—and spend more likely to have accounts-payable pro-
more time and money doing so, according cessing systems embedded in their ERP
to research from Aberdeen Group. software, Aberdeen reported.
Some companies take more than 16 Honeywell International, for example,
days to process an invoice, from receipt though they still process many paper Runow, Deutsche Bank: Take control of the
to approval, and spend more than $16 to invoices around the world, achieved data. It’s not the client paying you, it’s you
initiating the collection.
do so, Aberdeen Group found, analyzing improvements in accounts-payable
a survey of 180 companies that was con- cycle times by using a module, provided error-prone manual labor out of the pic-
ducted in the spring of last year. by Dolphin Enterprise Solutions, that ture. That all helps get cash in faster, and
Best-in-class companies, conversely, take works with SAP. Since rolling out the into the working capital coffers sooner.
one-fourth of that time (about four days) module, which processes all kinds of One thing to keep in mind is having a
and spend just $3.34 to process an invoice. invoices and allows for one place to do sense of control, says Runow of Deutsche
“The cost becomes pretty substantial so, the $37 billion company has improved Bank, even though with receivables it
over time,” says Ankita Tyagi, research invoice cycle time across many busi- often feels that the ball is in the payees’
analyst at Aberdeen Group. “Gradually nesses, Carol Lietzau, ACS project man- court. “Take control of the data,” Runow
people are catching on that there are ager at Honeywell International, said in a says. “It’s not the client paying you, it’s you
efficiencies to be realized in this area, to recent webcast. initiating the collection.”
realize savings.” Satisfaction with improvements in AP
Best-in-class practice in AP involves ACCOUNTS RECEIVABLE: GREATER and AR efficiency has been steadily ris-
improving automation and reducing the EFFORT FOR GREATER REWARD ing, according to a study conducted by
amount of errors—and work. How to do In the area of accounts receivable, where Accenture. More than three-quarters
this? Remove human involvement as much efficiencies translate more dramatically to (77%) of over 500 financial executives
as possible, says John Mulhall, partner in the bottom line, the challenges are greater, polled said they were very satisfied in 2011,
the Advisory group at consultancy KPMG. but so are the rewards. a jump of six percentage points from 71%
Two major challenges for corporations in 2008, according to the consultancy’s
are cash applications—where payments High Performance Finance Study.
and invoices are matched—and deduc- There is still room for improvement
“A straight-through
tions—in which there may be agreed-on and for accounts payable and receivable to
process, untouched discounts with a purchaser (or decisions to further demonstrate their worth and rel-
accept less than the invoiced amount, sub- evance, says Nancy Atkinson, senior analyst
by human hands, is
ject to materiality thresholds). For the lat- at consultancy Aite Group.
ter, such decisions may normally be made “We’re very close to a point where
the nirvana.”
on a case-by-case basis, which can involve there will be an intersection of technol-
—John Mulhall, KPMG a great deal of time and effort, especially ogy available from banks or other third
with various forms of payment and com- parties and the corporation’s ability and
“A straight-through process, untouched by munication. It can be a challenge to auto- demand for a more strategic look at their
human hands, is the nirvana,” he says. mate this process. financial management and working capital
Ideally, all invoices should be submit- But with cash applications, banks and management,” Atkinson says. “Companies
ted in standard electronic format, such ERP solution providers offer tools, such as will be able to be far more strategic in the
as electronic data interchange (EDI). lockbox or virtual accounts, that help digi- way they go about managing their capital,
Then, software systems can read the data, tize paper, electronically match payment and this will allow those who do it really
keep track for you and flag any issues and invoice, and get the time-intensive and well to excel.” n
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TREASURY & CASH MANAGEMENT | LIQUIDITY AND INVESTMENT MANAGEMENT
Sticking To
The Straight
And Narrow
Companies continue to bank on
safety and security in managing
liquidity and investments.
By Karen Kroll
At the end of this year’s first quar- of the game is still safety and security— reaction, back-of-the-envelope approach.”
ter, cash and short-term invest- not returns. As part of this focus, finance “Over the last few years, there’s been
ment balances among the nonfi- executives are paying ever more attention an expanded use of investment portals,”
nancial firms of the S&P 500 hit a record to risk assessment. “The single biggest LaRock adds. One reason: Treasurers can
$1.29 trillion, according to data provider theme since the financial crisis has been an embed their investment policy rules into
FactSet Research Systems. That’s up more increased focus on counterparty risk,” says the portal, preventing moves—whether
than 60% from the levels five years ago. Paul LaRock, principal with consultancy deliberate or inadvertent—that would
Even as firms’ cash balances grow to eye- Treasury Strategies. While many compa- violate corporate policies.
popping levels (see our GF Cash 25 feature, nies’ investment policies already limit the
supplement page 2), financial execs charged percentage of funds that could be invested WHAT TO DO WITH CASH
with managing these funds remain focused with any single counterparty, asset alloca- When it comes to investing excess cash,
on safety and liquidity. “If there’s no prin- tion has become more critical to an orga- CFOs say they are either holding on to
cipal, there are no returns,” points out Lisa nization’s investment strategy over the past it or plowing it back into the business.
Rossi, global head of structured liquidity few years, Rossi notes. During 2012, for instance, Applied com-
products, GTB, Deutsche Bank. For instance, the cash management team pleted eight acquisitions. Next on Applied’s
Although Mark Eisele, CFO with at Atlas Air holds weekly calls with the list: paying dividends—the company’s
Applied Industrial Technologies, has peri- major money market funds with which it five-year annual dividend growth rate is
odically turned to money market funds as invests to ensure that it continues to be 10.8%—and engaging in stock buybacks.
investment vehicles, he has consistently comfortable with their maturity profile and “We want to reward the shareholders who
shied away from prime funds. “We’re not overall holdings, including specific country invest in our business,” Eisele says.
searching for extra returns,” he says. “Not concentrations, McGarvey explains. It also At Atlas Air, cash is first used to ensure
then [pre-crisis], not today.” In fact, Eisele uses the calls to gather general industry that the company maintains a strong
is currently keeping most of his short-term and regulatory reform updates. Adds Atlas balance sheet. Cash in excess of that is
funds in deposit accounts. The reason? senior vice president and CFO Spencer available for investment in new assets that
“Banks are providing an earnings credit Schwartz: “When it comes to investments generate appropriate returns to grow the
rate that’s higher than the money market of our cash, we are risk averse and will business. In addition, the company has
fund rate,” he notes. sacrifice yield to maintain safety.” been actively buying back stock at a low
The low rates do have their upside, of Fortunately, the robustness and sophisti- price, Schwartz adds.
course. Atlas Air Worldwide was recently cation of the IT systems they use to manage The attention many companies are
able to secure long-term financing for four these assets have also advanced. Paul Reilly, currently paying to cash and liquidity
aircraft at under 2%. “This rate environ- EVP, finance and operations, and CFO of management will likely become even more
ment has allowed us to draw significant $20.4 billion Arrow Electronics, says over focused over the next year or two, as rates K
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leverage at historically low rates,” notes Ed the past decade he’s seen “an acceleration begin to rise. Although Reilly at Arrow DIT
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McGarvey, VP and treasurer at the airfreight in the development of treasury tools that doesn’t anticipate a significant reduction R
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outsourcing firm. make the deployment of capital more of a in liquidity, he does expect it to come at O
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TREASURY & CASH MANAGEMENT | CFO INTERVIEW: DUPONT
A Global View
Nick Fanandakis, EVP and CFO of global
agriculture, industrial bioscience and advanced
materials company DuPont, sat down with
Global Finance to discuss the firm’s growth
strategy, resource allocation and cash
management practices. By Denise Bedell
Global Finance: What would you say are to where we believe we want to spend our only from us in management, but also the
the key risks or challenges in develop- resource dollars. That becomes the budget board. The board’s perspective around this
ing markets? that the businesses work from. has changed and the engagement is much
Nick Fanandakis: We’re a company that We have a lot of metrics that we use more than it was 10 years ago.
operates in over 90 different countries. We to determine [value creation]. We’ve set GF: DuPont had more than $4 billion
have 32% of our sales in developing regions. a target where we want revenue [from in cash on balance sheet at the end of
You have to be fully aware of the economic new products] to be 30%. Last year we hit 2012. How do you ensure that cash is
environment and the volatility around that. 29%, so we’re starting to reach our objec- being most effectively utilized?
We manage our counterparty risk there tive there, which is great. We also look at Fanandakis: I have about $6.5 billion right
very aggressively. We deal with multinational top line growth from new products. If you now. That’s a great question. As I said, we’re
banks in those regions rather than any locals. look at growth top-line over a five-year a multinational company, so 60% of revenue
We do routine sweeps of cash. You have to period, almost three-quarters of it is com- [is generated] outside [the US] and that rev-
look at the partners you’re choosing to work ing from new products and production. enue generates earnings and cash outside
with in the region, make sure they’re well The third, from a macro sense, is around as well. When you look at cash on balance
respected in the region. Making sure you margin improvements: We have long-term sheet, there’s a substantial amount that is
control your exposure in those areas is key. objectives that we’ve set within each of our outside the US. Our priorities are around
GF: One big focus for DuPont is maxi- businesses around margin improvements. creating value in R&D, around global reach
mizing efficiency of resource allocation. Underneath all that we have individual and around execution. On global reach, the
Can you tell me about your strategy and reviews: We’re looking at cash returns, mile- ability to fund that is largely supported by
how you measure effectiveness? stones met, etc. The constant evaluation of the cash we have overseas.
Fanandakis: When we look at, for exam- those metrics and those projects is just as Also, we’re an A, A2-rated company (rat-
ple, R&D, we spend a little over $2 billion important as the process you use up front. ings from S&P and Moody’s, respectively).
a year in DuPont. If you look at our R&D GF: Can you describe the risk function That’s important to us. We want to main-
spend over the last five years, it’s increased at DuPont? tain that credit rating. It served us very well
by 50%. That’s nice, but that isn’t the story. Fanandakis: We have a risk committee, during the financial crisis. It served us well
The story is where you’re spending it and which I sponsor. My treasurer (Donna Grier) when we came out of the financial crisis
how effectively you are spending it. That’s chairs the committee. We meet monthly to and had the opportunity to buy Danisco,
the real key. We have [an internal] process review risk from a currency standpoint, a $7 billion acquisition that we were able
that we call prioritization of initiatives, or from a commodity standpoint. Any kind to do and still keep our rating.
POI. Every business will sit down during of hedging that is going to be done has to Agencies do look at your total adjusted
[budgeting] and develop what they believe come through that risk committee before it’s net debt. When you look at our gross debt
are their top opportunities for R&D spend. implemented. As you would imagine, all of and take off the cash we’re in one place,
The same would go for capital. They nar- our work in this area around derivatives of but then you add the pension liabilities—
row down to about ten [key] projects. They that nature are all based on risk mitigation, which are inflated now because of the dis-
submit that and then we go through a pro- not any speculative hedging. count rates—and it puts you in a differ- K
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cess at our Office of the Chief Executive [Our process has] changed a lot over the ent perspective from a rating agency view. DIT
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(OCE) level. We look at market attractive- years. There are more areas of concern that That level of strength in the balance sheet R
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ness, technology risks, the projected payouts we have to evaluate and make decisions on is really necessary in order to maintain that O
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and value. We rank all of those projects as each month. It’s taking more attention not single-A rating. n H
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