Cert ICM presentation

Treasury Building Blocks
Adapting the treasury function to High Growth and International Expansion
DDF - 28th May 2013
Jesper Broskov LEGO Group Treasury
Overview
23,405
Danish
family owned
million
34%
turnover
2012
operating
margin
employees
Sold in more
than
More than
3rd largest
toy company
in the world
3
The LEGO Group
12.26
4
8 years of
consecutiveg
rowth
130
countries
End 2012
60%
of this year’s
sales are
novelties
Brand  2
Strong growth since 2008
- Forced Treasury to focus on Scalability, Risk Mitigation and Stewardship
24000
22000
20000
1800
0
1600
0
1400
0
1200
0
1000
0
8000
6000
4000
2000
0
1993
199
4
DKK
million
The LEGO Group
199
5
199
6
199
7
199
8
199
9
200
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
201
0
201
1
201
2
Profit before tax
8000
7000
6000
5000
4000
3000
2000
1000
0
199
3
199
4
-1000
-2000
DKK
million
The LEGO Group
199
5
199
6
199
7
199
8
199
9
200
0
200
1
2002
2003
2004
2005
2006
2007
2008
2009
2010
201
1
2012
Growth Drivers
The LEGO Group
Markets  5
The LEGO Group
LEGO Foundation
KIRKBI A/S
LEGO A/S
Division(s) NN
LEGO System A/S
LEGO GmbH
LEGO Inc.
LEGO Ltd.
XX. (total of 44 Legal entities)
Cooperation between KIRKBI and LEGO Group
KIRKBI
• Asset Management
• Short & Long term inv management
Funding (DKK)
Cash & CAPEX
Currency hedge
Advisory & Consult.
Credit risk assesment
Group Treasury
• Cash & FX Management
Deposits & Dividend
Bank Portfolio
Back up funding
• Contract & Counterpart Risk
• Credit Risk Management
• Treasury IT – One platform
LEGO Group
Credit & Counterpart requests
New Markets /Currencies
Contracts
Liquidity Forecast
• Expansion
• New Countries
• New Products
• New Markets
A challenging business
•
Product life cycle: 20 months
•
50% of the product portfolio is renewed on annual basis and
account for:
•
•
65% of consumer sale
•
80% of production
High seasonality
•
35% of consumer sale takes places during 3-4 weeks
LEGO’s definition of Treasury
Contract
governance
Risk
management
Credit
management
FX & Cash
Management
The Treasurers Dilemma
- Driven by organisational focus and changes over time
Risk
Management
Technology/
Effeciency
Cost
High International Growth – Some Key points
- Integrate with Business Strategy and - Get Buy In !
- Involve all Stakeholders early
- Knowledge Management
- Scalability (Automation)
- Be aware of the hidden risks
- No ”fits all” solution
- Tender versus going with known partner
Where to add value?
Management by Automatisation
Account Receivable
In House Cash
• Payments on Behalf
• Cash Pooling
• Intercompany loans
Account Payable
Treasury
Risk Assessment
Contractual Review
Liquidity planning
Long term hedging
Procurement
Sales activities
Management by Knowledge
LEGO’s definition of Treasury
Risk
management
FX & Cash
Management
Cash Management Footprint
- 44 legal entities concentrated in North America, Europe and Asia Pacific
DKK NOK SEK
RUB
GBP
CAD
EUR PLN,LTL,LVL
USD
CNY
KRW
CZK HUF CHF RON
MXN
JPY
TWD HKD
Established LEGO entity
Planned LEGO entity
Local distributor / No precense
SGD
AUD
NZD
- EUR cross border cash pool
- Rest of the world covered with domestic cash pool solutions (5 exceptions)
- Payments on behalf from LEGO System A/S
Liquidity Management & Forecasting (from today to 24 months)
LIQUIDITY
PLANNING
CASH
MANAGEMENT
IN HOUSE
CASH
- Part of Group Sales &
Operations planning process
- Base for FX hedging
- Optimise capital structure
and banking facilities
2-24 month
SAP based Forecast :
- Cash timing
- Cash currency
- Cash amount
0-2 month
- Centralization of Cash
- Central control of Cash
- Cash infrastructure
Day 0
Idle cash balance reduced by 85%
- IHC and Cash Management has reduced idle cash levels by 85% allowing for faster strategic investments
In House Cash - Like trains on railroad tracks
From Idle cash to strategic investment on day 4
KIRKBI
• One global IT format with banks
• Directing FX hedging in accordance with liquidity management
• Country or regional infrastructure
No reload of ”cargo”
• Central Payemnt Center (PoB)
• Central PoA management
• Hedge and liquidity flows in accordance
Treasury
• Considering total cost of ownership (Front Office, Back Office, KIRKBI,
Bookkeeping)
• 2 employees can operate this flow => Lower employee
involvement => Automatisation
• Linking estimated future cash flow together with capital structure
• Settlement of all I/C items
Customer
payment
Day 1
liquidity to cost Inform KIRKBI of
and CAPEX
level of excess liquidity
Liquidity available for
Based on forecast
strategic investment
Day4
Day 2
Day 3
Balance sweep to
group top account
FX Hedge
Management
Transfer to
KIRKBI
Example : MXN Cash pool with Bank of America Merril Lynch
- Daily Zero Balance sweeps
- Electronic bank statements (FINSTA or MT940)
- Payments on behalf from LEGO System A/S
LEGO System A/S
Master Account
BAML
- Electronic payment files through secure channel
Lego System A/S
Electronic Disbursement
Account
BAML
LEGO Operaciones
Collection account
BAML
Manual
transfer
LEGO Operaciones
Custom Fee Account
Banorte
LEGO Operaciones
Payroll Account
Banorte
Automated ZBA
LEGO Real Estate
Collection Account
BAML
LEGO Mexica S.A
Collection Account.
BAML
Adm de Servicios
Collection Account.
BAML
Managing Bank Relationships (Counterparty Risk)
Core Principles
LEGO Banking Group
• Partnerships (strengths fit LEGO needs)
• Strong ”LEGO Knowledge”
Bank of America
• Assigned credit lines
ING Bank
• “Small fish in big bowl or big fish in small
bowl?”
Treasury
Global
Supply
Chain
• Keep the Cash Infrastructure running at all
times
• Ongoing evaluation by (Bank) Balanced Scorecard
• Price
• Performance
• User satisfaction / Response time
• Financials
Nordea Bank
Market
Group
Europe
SEB
• Shadow Counterpart and changeover time
• One global communication format
Market
Group
Americas/
Pacific
Market
Group
Asia
LEGO’s definition of Treasury
Contract
governance
Risk
management
Contract Governance
- Interdependence of roles and responsibility
Group Treasury
WACC
Payment
Security
Bank guarantees
Prepayment
Cash Flows
Letter of Credit
Leasing
Global Procurement
Vendors
Dividend
M&A
New entities
Rental contracts
Governance
Power of
Attorney
Contracts
Legal Department
Global Sales
LEGO’s definition of Treasury
Risk
management
Credit
management
Credit Risk Assesment
Financial
analysis
Risk
Calculation/
Portfolio
simulation
Customer
relationship
Complete Risk
Overview
Credit Risk Assessment
- Probability on cash flows
• Approach: Portfolio view on credit risk
• Customer Intelligence
• Financial Analysis
• Payment Track Record
• Monte Carlo Simulation based on:
• Risk Scores assigned to each counterpart
• Outstanding peak volume
• Number of credit days
• Allowing for correlated risk
• Impact from Credit Risk Insurance
Did you know?
Over the years apx 4 billion minifigures has
been produced making it the worlds biggest
population group
Wrap up - From uncertainty to accepted risk
Contract
Risk
Manage
ment
Credit
Customers &
Vendors
ID
Process
Impact
Cash Flow & FX
In House Cash &
Liquidty Forecast
Net Cash &
FX Exposure
Counterpart
knowledge
Fin. Analysis
Monte Carlo
simulation
Aggregated Risk
Comm. Risk
Legal Risk
Financial Risk
Corporate
Governance
Structure
Standardisation
Liqiodity
/ FX
Accepted Risk
Wrap up - The Science is in the Bricks!
• When a process is defined and impact quantified then automate
• Map where Treasury adds value to the business
• Become a partner but remember stewardship role (transparency and openess is key)
Treasury
Contract Review
Balanced Scorecard
Market Risk Analyser
Change Management
24 Months Forescast
In House Cash
Credit Risk Assesment
Hedge Planning
Credit Management
Questions?
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