Description
This corporate finance PPT includes parameters like leveraged buyouts, Customer Financing, Vendor Financing, CFO’s Organization, Initial Developments, Treasury Functions, Innovations in Treasury.
?
?
Impetus for a Distinct Discipline
CFO’s Organization
?
?
Initial Developments
Treasury Function today
?
?
Innovations in Treasury
The Challenges
2
1. 2.
Leveraged Buyout wave
• Barbarians at the Gate – RJB Nabisco
Divergence of Book value & Market Capitalization
• Intellectual Capital - New Reporting initiatives
3. 4.
Need for Corporate Governance
• Cadbury committee report - Corporate Scandals
Derivatives Disasters
• Weapons of Mass Destruction: Bankers Trust
Combined They Shape a New Discipline
3
?
?
22,000 M&A deals between 1981-1989
Three drivers
1. Financial buyers 2. Hostile deals 3. Leveraged buyouts
?
Represented by RJB Nabisco, popularized into
a book and a movie –Barbarians at the Gate
Financial Leverage Gains Prominence
4
Advent of new theories to explain this: • Intellectual Capital • Balance Scorecard
Need to Supplement Financial Reporting
5
1987, USA ? National Commission on Fraud Investigation The Treadway Commission Report
? Every Company to have an Audit Committee
1992, UK ? BCCI, Poly Peck, Coloroll plc., Maxwell scandals –The Cadbury Committee
? Audit Committee to have only independent directors
Investor Relations comes to the Forefront
6
?
?
?
Market determined foreign exchange rates after1973 Huge fluctuations in 1980s – both interest and FX rates Use of Derivatives to manage risk
? Futures, Forwards, Swaps, Options ? Metallgesellschaft AG – $1 billion loss on oil hedging
?
Complex derivatives enter the markets
? Inverse floaters, interest collars ? Disney –$48 m per annum loss on royalty hedging ? P&G -$157 m loss
Financial Risk Management comes of Age
7
1980s
Chief Finance Officer
1990s
Chief Finance Officer
Finance Manager
Corporate Treasurer
Accounts Manager
Finance Controller
Legal & Secretarial
Legal Counsel
Shift from Domain to Functionality
8
?
Alexander Hamilton Award for Excellence in Treasury
? Initiated in 1995 ? by Treasury & Risk Magazine & Association of Corporate Treasurers, USA ? Categories of Awards
? ? ? ? ? ? Operational Risk Management Financial Risk Management Investor Relations Cash Management Liquidity Management Technology Usage
Treasury function Defined
9
?
Alexander Hamilton Awards, 2009 categories 1. Overall Excellence 2. Best Green Strategy 3. Technology Excellence 1-4 Excellence 4. Solution of the Year 5. Cash Management 6. Liquidity Management 7. Retirement benefits Management 5-8 Cash Management 8. Working Capital Management 9. Enterprise Risk Management 10. Credit Risk Management 11. Financial Risk Management 9-11 Risk Management
}
}
}
Investor Relations Deleted
10
Multi-faceted function today 1. Sourcing Finance
? ?
2. 3. 4.
Cost vs. Quantum When needed vs. when available
Surplus Cash Management
• Safety vs. Liquidity vs. Return
Collection Systems
• Time lag vs. Cost
Payment Systems
• Simplify, Automate, Outsource
11
1.
Financial Risk Management
• Foreign Exchange Risk Management • Interest rate Risk management • Credit Risk Management
2.
Insurance
• Assets, Directors & Officers Policy, Product Liability & Professional Indemnity
3.
Enterprise Risk Management (increasingly seen as a separate function)
• Risk Identification, mitigation and reporting
12
1.
Transparency
• Periodic: Annual reports, Quarterly results • Event based: Price sensitive information • Fair disclosures: Individual & institutional investors
2.
Governance
• Investors’ ambassador in the company • Sensory nerve of the management to market moves
3.
Measure of Performance
• Trading in stocks • PE w.r.t industry peers
13
Traditional Functions
1.
New Demands
Sales Aid or Customer financing
2.
1. 2. 3.
Raising Resource Managing Surplus Managing Risk
Procurement Aid or Vendor financing Strategic Investing
3.
Competitive Business, Value Conscious Buyers
14
Industry features for Customer Finance
? ? ? ?
Current practices in Customer financing
? ?
Products newly introduced –Medical equipments High unit cost products -Automobiles Recurring service revenue for product sold – Photocopying machines, Mobile phones, Competitive practice in the industry –Consumer durables
Only help no finance –Real estate, Housing Part risk underwritten – buy back of equipment, refurbishment of equipment, margin put up by seller Installment sale –Medical equipments, Consumer durables Exclusive tie-ups with financers -Automobiles Subsidiary or joint venture for financing
?
? ?
Customers demand for Outcome not Input
15
Industry features for Vendor finance ? Few manufacturers needing specialized parts –electronics industry in India in 1980s ? Large scale suppliers needed: Assembly line industry Automobiles ? Vendor size relatively small & unattractive to lenders increasing vendor borrowing cost ? Arbitrage opportunity in interest rates Current practices ? Committed order for higher quantity or longer period ? Higher advance component ? Providing special purpose equipment ? Financing special purpose equipment –repayment fixed for per unit procured ? Joint venture with the vendor
Vendors’ Cost is Our Cost
16
Industry Features for Strategic Investing
?
Intellectual Property driven, i.e. technology or
research: pharma, technology companies, bio
technology
?
Need to create an eco-system for the industry : Nascent industry or new in that geography - auto
?
Facilitate creeping acquisitions: Wipro-Spectramind
17
?
Volatile Financial Markets
?
Competitive pressure & stock market expectations
? Simplify – Automate - Outsource, or ? Customize – Integrate – Professionalize ? Treasury function needs to do both
? Global linkages ? Plethora of hedging instruments ? Online information flow
?
Twin Global Trends in Support functions
? Need to perform both in the short & long term
18
doc_150080715.ppt
This corporate finance PPT includes parameters like leveraged buyouts, Customer Financing, Vendor Financing, CFO’s Organization, Initial Developments, Treasury Functions, Innovations in Treasury.
?
?
Impetus for a Distinct Discipline
CFO’s Organization
?
?
Initial Developments
Treasury Function today
?
?
Innovations in Treasury
The Challenges
2
1. 2.
Leveraged Buyout wave
• Barbarians at the Gate – RJB Nabisco
Divergence of Book value & Market Capitalization
• Intellectual Capital - New Reporting initiatives
3. 4.
Need for Corporate Governance
• Cadbury committee report - Corporate Scandals
Derivatives Disasters
• Weapons of Mass Destruction: Bankers Trust
Combined They Shape a New Discipline
3
?
?
22,000 M&A deals between 1981-1989
Three drivers
1. Financial buyers 2. Hostile deals 3. Leveraged buyouts
?
Represented by RJB Nabisco, popularized into
a book and a movie –Barbarians at the Gate
Financial Leverage Gains Prominence
4
Advent of new theories to explain this: • Intellectual Capital • Balance Scorecard
Need to Supplement Financial Reporting
5
1987, USA ? National Commission on Fraud Investigation The Treadway Commission Report
? Every Company to have an Audit Committee
1992, UK ? BCCI, Poly Peck, Coloroll plc., Maxwell scandals –The Cadbury Committee
? Audit Committee to have only independent directors
Investor Relations comes to the Forefront
6
?
?
?
Market determined foreign exchange rates after1973 Huge fluctuations in 1980s – both interest and FX rates Use of Derivatives to manage risk
? Futures, Forwards, Swaps, Options ? Metallgesellschaft AG – $1 billion loss on oil hedging
?
Complex derivatives enter the markets
? Inverse floaters, interest collars ? Disney –$48 m per annum loss on royalty hedging ? P&G -$157 m loss
Financial Risk Management comes of Age
7
1980s
Chief Finance Officer
1990s
Chief Finance Officer
Finance Manager
Corporate Treasurer
Accounts Manager
Finance Controller
Legal & Secretarial
Legal Counsel
Shift from Domain to Functionality
8
?
Alexander Hamilton Award for Excellence in Treasury
? Initiated in 1995 ? by Treasury & Risk Magazine & Association of Corporate Treasurers, USA ? Categories of Awards
? ? ? ? ? ? Operational Risk Management Financial Risk Management Investor Relations Cash Management Liquidity Management Technology Usage
Treasury function Defined
9
?
Alexander Hamilton Awards, 2009 categories 1. Overall Excellence 2. Best Green Strategy 3. Technology Excellence 1-4 Excellence 4. Solution of the Year 5. Cash Management 6. Liquidity Management 7. Retirement benefits Management 5-8 Cash Management 8. Working Capital Management 9. Enterprise Risk Management 10. Credit Risk Management 11. Financial Risk Management 9-11 Risk Management
}
}
}
Investor Relations Deleted
10
Multi-faceted function today 1. Sourcing Finance
? ?
2. 3. 4.
Cost vs. Quantum When needed vs. when available
Surplus Cash Management
• Safety vs. Liquidity vs. Return
Collection Systems
• Time lag vs. Cost
Payment Systems
• Simplify, Automate, Outsource
11
1.
Financial Risk Management
• Foreign Exchange Risk Management • Interest rate Risk management • Credit Risk Management
2.
Insurance
• Assets, Directors & Officers Policy, Product Liability & Professional Indemnity
3.
Enterprise Risk Management (increasingly seen as a separate function)
• Risk Identification, mitigation and reporting
12
1.
Transparency
• Periodic: Annual reports, Quarterly results • Event based: Price sensitive information • Fair disclosures: Individual & institutional investors
2.
Governance
• Investors’ ambassador in the company • Sensory nerve of the management to market moves
3.
Measure of Performance
• Trading in stocks • PE w.r.t industry peers
13
Traditional Functions
1.
New Demands
Sales Aid or Customer financing
2.
1. 2. 3.
Raising Resource Managing Surplus Managing Risk
Procurement Aid or Vendor financing Strategic Investing
3.
Competitive Business, Value Conscious Buyers
14
Industry features for Customer Finance
? ? ? ?
Current practices in Customer financing
? ?
Products newly introduced –Medical equipments High unit cost products -Automobiles Recurring service revenue for product sold – Photocopying machines, Mobile phones, Competitive practice in the industry –Consumer durables
Only help no finance –Real estate, Housing Part risk underwritten – buy back of equipment, refurbishment of equipment, margin put up by seller Installment sale –Medical equipments, Consumer durables Exclusive tie-ups with financers -Automobiles Subsidiary or joint venture for financing
?
? ?
Customers demand for Outcome not Input
15
Industry features for Vendor finance ? Few manufacturers needing specialized parts –electronics industry in India in 1980s ? Large scale suppliers needed: Assembly line industry Automobiles ? Vendor size relatively small & unattractive to lenders increasing vendor borrowing cost ? Arbitrage opportunity in interest rates Current practices ? Committed order for higher quantity or longer period ? Higher advance component ? Providing special purpose equipment ? Financing special purpose equipment –repayment fixed for per unit procured ? Joint venture with the vendor
Vendors’ Cost is Our Cost
16
Industry Features for Strategic Investing
?
Intellectual Property driven, i.e. technology or
research: pharma, technology companies, bio
technology
?
Need to create an eco-system for the industry : Nascent industry or new in that geography - auto
?
Facilitate creeping acquisitions: Wipro-Spectramind
17
?
Volatile Financial Markets
?
Competitive pressure & stock market expectations
? Simplify – Automate - Outsource, or ? Customize – Integrate – Professionalize ? Treasury function needs to do both
? Global linkages ? Plethora of hedging instruments ? Online information flow
?
Twin Global Trends in Support functions
? Need to perform both in the short & long term
18
doc_150080715.ppt