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Benelux benchmark study 2001

82 pages
Benelux Corporate Treasury BenchmarkingSurvey 2001Benelux Corporate Treasury BenchmarkingSurvey 2001A Benelux Study supported by:The Dutch Association of Corporate Treasurers (DACT)The Federation of Coordination, Distribution, Service & Call Centers (Forum 187)The Belgian Association of Corporate Treasurers (ATEB)The Luxembourg Association of Corporate Treasurers (ATEL)1PricewaterhouseCoopers (, the world’s leading professional servicesorganisation, helps its clients build value, manage risk and improve their performance.As a leading treasury consulting firm, PricewaterhouseCoopers provides advisory services to majorglobal, national and local companies on how to enhance the effectiveness and contribution to thebusiness of their treasury operations.Copyright © 2001 PricewaterhouseCoopers. All rights reserved.The information in this report is the exclusive property of PricewaterhouseCoopersand may not be reproduced or distributed without prior consent.01/11/01.28.202 Benelux Corporate Treasury Benchmarking - Survey 2001ContentsForeword 5Executive Summary 7Introduction 131 Organisation & policy standards 15Overview 17Treasury organisation & responsibilities 19Risk Management approach 23Treasury policies 252 Activities & control standards 27Interest Rate Exposure Management 29Foreign Exchange Exposure Management 31Debt Management 35Investment Management 37Management Controls 39Operational Controls 413 Measurement & review ...
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Benelux Corporate
Survey 2001
Treasury Benchmarking
Benelux Corporate Treasury Benchmarking Survey 2001
A Benelux Study supported by:
The Dutch Association of Corporate Treasurers (DACT) The Federation of Coordination, Distribution, Service & Call Centers (Forum 187) The Belgian Association of Corporate Treasurers (ATEB) The Luxembourg Association of Corporate Treasurers (ATEL)
PricewaterhouseCoopers (, the world’s leading professional services organisation, helps its clients build value, manage risk and improve their performance.
As a leading treasury consulting firm, PricewaterhouseCoopers provides advisory services to major global, national and local companies on how to enhance the effectiveness and contribution to the business of their treasury operations.
Copyright © 2001 PricewaterhouseCoopers. All rights reserved.
The information in this report is the exclusive property of PricewaterhouseCoopers and may not be reproduced or distributed without prior consent.
Benelux Corporate Treasury Benchmarking - Survey 2001
Contents Foreword 5 Executive Summary 7 Introduction 13 1 Organisation & policy standards 15 Overview 17 Treasury organisation & responsibilities 19 Risk Management approach 23 Treasury policies 25 2 Activities & control standards 27 Interest Rate Exposure Management 29 Foreign Exchange Exposure Management 31 Debt Management 35 Investment Management 37 Management Controls 39 Operational Controls 41 Measurement & review standards 43 Performance Measurement 43 Counterpart performance of banks 47 Management Reporting 49 Infrastructure & cost standards 51 Staff skills 53 Cost Structure 55 Technology 57 Accounting 61 New challenges 65 Comparison of Benelux 2001 study results with the 1995 Global study 71 Comparison with Global Survey 1995 72 Appendix 1 73 Glossary of Terms 73 Appendix 2 79 Contact information 79
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Benelux Corporate Treasury Benchmarking - Survey 2001
Benelux Corporate Treasury Benchmarking - Survey 2001
I am grateful to PricewaterhouseCoopers for inviting me to introduce the Benelux Corporate Treasury Benchmarking Survey 2001 and more importantly for the time and effort spent in putting the survey together. Thanks must also go to the numerous companies from across the Benelux who took the time to respond to the survey questionnaire, thereby making the study worthwhile. As one would expect, the report makes interesting reading and will enable treasury and finance professionals in the region to assess the maturity of their treasury functions and processes versus those of their peers. The findings of the survey are sometimes surprising, but a number of clear trends and facts emerge which will be of interest to anyone involved with the treasury function, from the group CFO to affiliate cash managers and controllers. A number of trends emerge from the study which are confirmed by ongoing discussion within the treasury community. These include the continued centralisation of treasury decision making, facilitated by enhanced information technology, the increasing acceptance of the service centre model combined with a dynamic hedging approach, and the continuing need for treasury to face up to new challenges, including most notably technological developments and changes in accounting rules. Undoubtedly the most important driver now reshaping the treasury landscape is technology. Technological change is dramatically enhancing the opportunities for treasury to connect to both the internal and external worlds. With treasury dependent upon access to information on underlying business flows for accurate and informed decision making, the ability to integrate new technology and bring treasury closer to the business has become a key challenge. Many treasurers have worked hard over the last few years to implement treasury management systems and electronic banking interfaces. We must now face up to the challenge of driving the information linkages deeper into our organisations. To meet the challenges afforded by new technology treasurers will need to build significantly increased IT skills within their departments or consider the benefits of outsourcing. Treasury departments are continually under pressure to show how they deliver value. It is interesting to note in this context that many companies continue to struggle with the subject of treasury performance measurement. The report confirms the feeling of many treasurers, that whilst it is essential for treasury to demonstrate how the function adds value to the organisation as a whole, many companies still have some way to go in delivering performance reports which assess both the qualitative and quantitative aspects of treasury's contribution to the business. Nonetheless, as technological and information barriers are gradually overcome, clear and quantified treasury performance measurement will increasingly become the norm. The need to keep up with the pace of the numerous changes affecting treasury is a constant challenge for all of us. This survey report provides a valuable basis for any company to assess it's own activities against those of its peers, and will help treasurers and CFO's to understand the opportunities which are out there. François Masquelier President of the Luxembourg Association of Corporate Treasurers and Treasurer of RTL Group.
Benelux Corporate Treasury Benchmarking - Survey 2001
Benelux Corporate Treasury Benchmarking - Survey 2001
Executive Summary
Introduction This study presents the results of a survey conducted with the help of the corporate treasury functions of 44 leading non-financial corporates in The Netherlands, Belgium and Luxembourg. The study has been conducted with the support of The Dutch Association of Corporate Treasurers, the Federation of Coordination, Distribution, Service & Call Centers, the Belgian Association of Corporate Treasurers and the Luxembourg Association of Corporate Treasurers. It constitutes an update of surveys conducted previously by PricewaterhouseCoopers globally in 1995, in Switzerland in 1999 and in the Nordic region in 2000. This study presents an analysis of: Organisation & policy standards Activities & control standards Measurement & review standards Infrastructure & cost standards Accounting practices New challenges Comparison of Benelux 2001 study results with earlier surveys Highlights of the findings of this survey are summarised below. Organisation & policy standards All but one of the companies surveyed structured the treasury as a service centre. Only one Belgian respondent structured the treasury as a profit centre. This would tend to confirm the continuing trend away from a profit centre approach. Nonetheless survey responses suggest that the dynamic management of underlying exposures is still the norm. Many major corporates adopt a centralised approach to treasury, and centralisation would appear to be an ongoing trend amongst the companies surveyed. 41% indicate that centralisation will increase in future, while 59% indicate that the current situation will remain unchanged. The ability to centralise treasury in this way is a natural consequence of the increased ease with which information may be exchanged, facilitated by continuing developments in technology. Continuing on the theme of centralisation, shared service centres are used by about 20% of the companies surveyed. The survey indicates that the scope of services performed by shared service centres will increase in coming years. The increased use of shared service centres is expected to significantly change the way in which treasury business is conducted in the future, providing enhanced for treasury opportunities to connect effectively into the underlying business. The survey results indicate that treasury continues to be responsible for managing financial risks, either at a Group or Regional Treasury level, but that non-financial risk exposures tend to be managed in the functional area where the risk is generated.
Benelux Corporate Treasury Benchmarking - Survey 2001
Study findings show that 66% of respondents do not have a dedicated Chief Risk Officer. This is not likely to change in the near future, with only 7% of respondents presently evaluating whether or not to create such a position.
More than three quarters of respondents have developed formal policies for treasury, covering such areas as the management of debt, investments and FX and interest rate exposures.
Only 10% of respondents currently outsource treasury activities, though 26% plan to or currently outsource such areas as IT hardware support. Activities & control standards The majority of the participating companies (68%) partially hedge underlying interest rate exposures. One fourth of the participants indicated that they fully hedge underlying interest rate exposures. None of the respondents indicated that they take positions unrelated to underlying interest rate exposures.
The survey analysed the approach taken in the management of foreign exchange risk by the participating companies. 47% of survey respondents partially (as opposed to fully) hedge translation exposures, whilst 60% partially hedge transaction exposures. This indicates an active risk management approach among the companies surveyed. Only 6% of all respondents take positions unrelated to underlying FX exposure. Very few respondents do not hedge transaction exposure at all. 41% do not hedge foreign exchange translation exposure.
The most common debt instruments used are bank related credits, such as overdrafts, uncommitted and committed credit facilities and revolving facilities. These instruments are all credits drawn from the bank balance sheet, and are generally easy to comprehend, transact and manage. Although they are usually a relatively expensive ways of funding, they may also be the most cost-efficient for companies with small variations in liquidity. Commercial paper and bond issues are used by less than half of the companies participating in this survey.
Four of the respondents mention securitisation as an alternative way of funding. Securitisation transactions, where a company sells assets to a special purpose vehicle funded by a variety of funding instruments, are relatively complex in nature but are being increasingly used in practice.
Most treasuries see bank deposits and money market time deposits as natural substitutes for more active investment management activities. Other investment instruments, such as commercial paper, treasury bills, bonds and repos are much less frequently used.
82% of respondents indicate that treasury objectives and policies are formally approved, documented and signed by the board of directors. Most respondents assign responsibility for development of policies and objectives to the group treasurer (67%), treasury/finance committee (41%) and/or the group CFO (26%). This reflects the need for a clear understanding of treasury operations in the development of effective management policies. Regular internal audit reviews of treasury activities are conducted at Group Treasury level by 65% of respondents, though only around 20% extend these reviews down to the Regional Treasury, operating company or Country Cash Manager levels.
Benelux Corporate Treasury Benchmarking - Survey 2001
Measurement & review standards 33% of the treasuries surveyed do not measure the performance of the treasury function. Nonetheless, almost 35% of all respondents use both qualitative and quantitative tools to measure performance. Technology constraints and the difficulty of defining appropriate benchmarks continue to be mentioned as major constraints in establishing effective treasury performance measurement benchmarks and systems.
According to survey respondents, the two main objectives of measuring treasury performance are to demonstrate the efficiency of treasury and to assess effectiveness of the treasury strategy.
The most commonly used indicators are cash management costs, net funding costs, counterpart bid performance analyses and transaction volumes/period analyses. Other benchmarks mentioned by respondents include performance against set benchmarks such as relevant indices.
The survey suggests that the service offered by banks has improved over time or at least is at the same level as it was 3 years ago. Less than 15% of respondents indicated a worsening of services provided by banks.
Choice of counterpart is based on a range of different criteria. Pricing and funding assistance are regarded as the two most important criteria by survey participants. Personal contact is regarded as the third most important, whilst the range of company wide services available is fourth. It is of interest to note that many respondents regard research as the least important criterion in the choice of counterpart.
In most instances corporate reporting on treasury activities is either a monthly (45%) or weekly occurrence (14%). 48% of respondents prepare corporate level risk reports of 5 pages or less, 18% prepare reports of 6 to 10 pages and 16% - 10 pages or more. Corporate level risk reports are most commonly distributed to the CFO (66%), head of finance (34%) and the board of directors (27%).
Infrastructure & costs standards More then 80% of companies participating in the survey employ less than 6 staff in Group Treasury. Moreover, almost 93% of all respondents have a Group Treasury staff consisting of not more than 10 people. Nearly all survey respondents (98%) report that staff within treasury have an average age of 30 or higher. 95% of companies participating in the survey indicate that treasury staff have an average experience in treasury and finance of at least 4 years. Half of the respondents report an average of at least 7 years treasury and finance experience among treasury staff.
Two thirds of all survey participants have gross annual employment costs within Group Treasury lower then600,000. Total operating costs of treasury, including IT costs, are reported to be less than 1 million by almost one half of all survey respondents (47%).
The survey analysed the nature of technology systems used by Benelux corporates in group and regional treasury operations. Details of systems used in treasury management, treasury support, cash management and management reporting were obtained for both group and regional treasury
Benelux Corporate Treasury Benchmarking - Survey 2001
operations. At the Group Treasury level, respondents predominantly use treasury management packages in each of these functions. Within the next two years, a high proportion of respondents intend to make changes to information systems in areas such as decision support and analysis (38%), automated dealing and confirmation (28%), treasury management (49%) and management reporting (46%). Integration of web-based technologies is the most common area of systems development intended in the near future by the treasuries surveyed. At present, web-based systems are in use or planned by 77% of all survey respondents. Accounting 66% of all survey respondents prepare accounts in accordance with US GAAP or International Accounting Standards (IAS), one respondent in accordance with both. US GAAP and IAS provide detailed guidelines not presently prescribed in local GAAP. The widespread use of US GAAP and International Accounting Standards stems from the high proportion of respondents raising funds internationally, with several being listed on foreign stock exchanges. These percentages imply that the vast majority of respondents are currently affected by FAS 133 and IAS 39 on derivatives and hedging. Two thirds of the companies surveyed which have not already implemented either of these standards, are planning to do so. 60% of these respondents plan this implementation for within 1 year. The survey examined the extent to which accounting and tax rules influence strategies and decision making within participating companies. The results show that accounting and tax rules have a significant impact on these areas across all respondents, tax (81%) having a bigger impact than accounting (62%). 62% of the companies that are planning to implement or have implemented either FAS 133 or IAS 39 expect the implementation will have an impact on their treasury risk management policies. This confirms the somewhat controversial view that accounting rules are likely to affect risk management decisions. New challenges More than half (56%) of the companies surveyed expect that internet trading and internet trading technology will have a high impact on their corporate treasury and risk management activities during the next two years. 82% of all respondents expect that new accounting standards for derivative instruments (FAS 133/IAS 139) will have high (49%) or moderate (33%) impact on their corporate treasury and risk management activities. 65% of the companies surveyed expect that shared service solutions will affect their corporate treasury and risk management activities during the next two years. 12% of all respondents expect this impact to be high.
Benelux Corporate Treasury Benchmarking - Survey 2001
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