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From Cash Management to Inhouse Bank
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  1. From Cash Management to Inhouse Bank UBS Treasurer Summit October 2014 Brice Zimmermann, Head Treasury Control & Reporting

  2. Agenda Novartis Treasury & Finance Transformation Program Business rationale and implementation project Benefits and Lessons learned Why and how should your company engage in such a project Callout 2 | UBS Treasurer Summit | October 2014 | From Cash Management to Inhouse Bank

  3. Novartis Treasury & Finance Transformation Program The Company / Treasury Novartis • Healthcare company headquartered in Basel, Switzerland • Net sales of USD 57.9 bn in 2013 • Pharmaceuticals USD 32.2 bn • Alcon USD 10.5 bn • Sandoz USD 9.2 bn • Consumer Health USD 4.0 bn • Vaccines & Diagnostics USD 2.0 bn Treasury operations • Corporate Unit within Group Finance • 3 Departments (International Treasury, Capital Markets, Control & Reporting) Main Objectives: • Effective financial risk management • Provide financing and financial services to the operating business of Novartis | UBS Treasurer Summit | October 2014 | From Cash Management to Inhouse Bank

  4. Novartis Treasury & Finance Transformation Program Objectives of the Finance Transformation Program Overall • Have full control and visibility over the financial risk within the Group • Have full control and visibility over the liquidity of the Group • Maintain global Cash Pool structures wherever appropriate • Concentrate Cash Management to a selected number of core banks • Develop and streamline the payment infrastructure • Introduce Centers of Competence within Financial Service Centers Treasury & Cash Management | UBS Treasurer Summit | October 2014 | From Cash Management to Inhouse Bank

  5. Conceptual solutionFrom a local approach... • Local country management of short term cash and funding • Multiple banking partners – approx. 60 in Europe • Periodic interaction between affiliates and Group Treasury; monthly visibility through reporting • Limited automation or standardization – inconsistent approach to controls • Heterogeneous approach to bank interfaces, file formats | UBS Treasurer Summit | October 2014 | From Cash Management to Inhouse Bank

  6. Conceptual Solution ... To vertically integrated operational treasury activities Group Treasury InHouse Bank PaymentFactory FSC DEXX CHXX ESXX ITXX • Central management of affiliates’ cash and liquidity by Group Treasury • (20 countries, approx. 150 legal entities in Europe, of which 33 entities in Switzerland only) • 3 main banking partners in Europe – BNP Paribas, HSBC, UBS • Improved cash forecasting through system based processes • Standardized bank interfaces and file formats | UBS Treasurer Summit | October 2014 | From Cash Management to Inhouse Bank

  7. Conceptual Solution Standardize, simplify, and automate processes Payment Files Statement Files Finance Service Centers Invoice Processing IHB / Payment Factory Cash Pooling, Optimal Payment Routing . Finance Service Centers Cash Application, Reconciliation Divisional pillars FI module - General Ledger Central system In-House Cash module Cash Management module Divisional pillars FI - AP & AR Sub-Ledgers | UBS Treasurer Summit | October 2014 | From Cash Management to Inhouse Bank

  8. Business rationale Key factors | UBS Treasurer Summit | October 2014 | From Cash Management to Inhouse Bank

  9. Business rationale Instant Visibility • Automated link to 3 main banks via SWIFT • Generation of global accurate position reports available on a daily basis • Cash forecasting capabilities are a prerequisite for investment opportunities | UBS Treasurer Summit | October 2014 | From Cash Management to Inhouse Bank

  10. Business rationale Instant Accessibility • Automated Zero-Balancing – funds concentrated at the end of day • Simplified foreign exchange currency management (due to concentration on master accounts at In-House Bank level) • Basis for Payment Factory implementation • Standardized execution of payments via SWIFT (FileAct / FIN) | UBS Treasurer Summit | October 2014 | From Cash Management to Inhouse Bank

  11. Business rationale Completeness • Transparency on all cash positions across all banks (incl. legacy bank accounts kept as exceptions) • Complete and timely information on currency and counterparty exposure | UBS Treasurer Summit | October 2014 | From Cash Management to Inhouse Bank

  12. Lessons Learned & Next Steps Next Steps Roll-out of cash pooling concept to new regions (Americas & Asia) Completion of Payment Factory / implementation of Payment Factory «light» • Account statements collected «on behalf» and pushed to various backends Conversion to SEPA-compliant master data and file formats Improving auto-allocation process Embedding AP and AR processes into Financial Service Center environment Study feasibility of Collection Factory Replace current netting system with netting within IHB wherever possible | UBS Treasurer Summit | October 2014 | From Cash Management to Inhouse Bank

  13. Lessons Learned & Next Steps Critical factors to be considered Legal issues • What are the no-gos for your legal department? • Do the Partner Banks apply the same contracts as the main bank? Specific requirements in certain countries • What payment/collection methods & legal requirements are unique? • Can the chosen bank support these requirements if not a retailer? Compatibility of payment files and account statements with standard Electronic Banking System (EBS) • What file formats are supported in each country by local EBS? • Is the bank’s standard EBS the most suitable in each country? • Has an end-to-end testing been carried out before go-live? Internal issues • Monitoring of closing of local legacy structures required | UBS Treasurer Summit | October 2014 | From Cash Management to Inhouse Bank

  14. Lessons Learned & Next Steps Implementation Scope and Timeline CH, BE, FI DE, AT, NL, SLO, SLV IT, ES, PT, UK, IRL PL, CZ, HU, DK, NO, SE Implementation Assessment / Scope / RFP Implementation Assessment / Scope / RFP Go-Live Completed Started | UBS Treasurer Summit | October 2014 | From Cash Management to Inhouse Bank

  15. Why should your company engage in such project • Benefits brought by such project (both qualitative and quantitative) don’t depend on the company’s size • Many such projects have been implemented already by other corporates – You are not the «pilot client» anymore • Implement latest technologies available, leverage bank systems • Follow-up projects likely to arise during «core project» implementation (SEPA implementation, payment terms, payment / collection methods) • Enable the review and consolidation of processes linked to cash management and payment execution • Improve quality and transparency of information, making comparisons across divisions and/or countries possible / more accurate • Replace lower value-added activities (bank reconciliation) with higher value added activities (cash forecasting) | UBS Treasurer Summit | October 2014 | From Cash Management to Inhouse Bank

  16. How should your company engage in such project • Share best practices with peer corporates, but define your own best practices (corresponding with your company culture and treasury organisation) • Organize alignment meetings to ensure that all stakeholders have a common understanding on objectives and milestones. Involve senior management and ensure their buy-in / sponsoring • Get the input from local entities / countries on business specifics (e.g. confirming in Spain, RIBA in Italy). The project is centrally-driven, not imposed. Involve Tax / legal at an early stage to validate pooling structures and intercompany relations. • Make best use of the knowledge brought by the bank (pooling structure) and system providers (Swift, ERP) • Always allow for learning curve, but implement measurement mechanisms (KPIs) to ensure the success of the project | UBS Treasurer Summit | October 2014 | From Cash Management to Inhouse Bank

  17. Level of centralization Increased transparency of Cash-Flow positions Integrated Cash-Flow Reporting & Forecasting Cash Management models Trends & Developments in Treasury- and Cash- Management Different levels in the ongoing centralization Shared Service Center (SSC) • Central handling of Risk-, Liquidity-, Cash Flow-Management and Group Financing • Centrally administered Incoming- and Outgoing Payments • Steering of entire Payments Flows through a central hub(operational and financial Cash Flows) • Group Treasury as IHB und Counterparty with marketappearance • Settlement through intercompanyaccounts In-house bank Payment- and Collection Factory Integrated Finance & Treasury organization and In-house banking ManageCash & BankInfrastructure • Group Treasury "defines" the Group's Cash Pooling structure as well as the local banking landscape Value proposition / complexity Centralized Treasury & Cash Management Liquidity Management (Solutions) • Cash visibility and concentration of group liquidity through pooling (manual or automated cash pool / concentration schemes) • Intercompany financing as well as offsetting of internal accounts payable and receivable (Netting) Visibility / Cash Flow Reporting Where in the process does Your Organization stand?