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New York Cash Exchange 2011 Pall Corporation Approach to Managing Global Liquidity. Pall Corporation Kevin Kilkelly Assistant Treasurer. Bank Mendes Gans N.V. Mrs. K.I. Kombrink Executive Vice President. Global Liquidity Management - Notional Cash Pooling. Pall Overview.

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new york cash exchange 2011 pall corporation approach to managing global liquidity

New York Cash Exchange 2011Pall Corporation Approach to Managing Global Liquidity

Pall Corporation

Kevin Kilkelly

Assistant Treasurer

Bank Mendes Gans N.V.

Mrs. K.I. Kombrink

Executive Vice President

pall overview
Pall Overview
  • Operational Overview
  • Pall (NYSE: PLL, S&P500 company) is a leading supplier of filtration, separation and purification technologies across the broad spectrum of life sciences and industry.
  • The company’s engineered products enable process and product innovation and minimize emissions and waste.
  • Pall conducts business in over 30 countries worldwide

Financial Statistics –F ‘10

  • Revenue: $2.4B
  • Profits: $241.2M
  • Operating Cash Flow: $377.9M
  • Credit Rating:
    • Moody’s: Baa1 / P2
    • S&P : BBB / A2
treasury principles
Treasury Principles
  • Cash is a corporate asset
  • Protect this asset
  • Enhance shareholder value
  • Centralized control with decentralized execution
  • Strategic direction from Corporate Treasury
  • Tactical execution on transactional level
  • Execution via Regional Financial Service Centers
  • Macro level overview of responsibilities
  • Sound control environment governing all cash movements
  • Optimizing cash resources
requirements for operational success
Requirements for Operational Success

Centralized Liquidity Management

  • Global Cash Pooling
  • In-Country Target Balances
  • Global Settlements
    • Global Funding

Centralized

control

Decentralized

execution

Sound Control Structure

  • Effective & standardized global policies and procedures
    • Consistent administration & execution
    • Procedures always in place before execution
  • Sarbanes Oxley compliant
  • Internal Audit reviews

Information Technology

    • Eliminate redundancies
    • Real-time activity reporting
  • Consistent application of controls
  • Increased productivity
  • Transcends time zones
  • Internet based portal :
    • Account opening/closing
    • Self Service Portal

Visibility & Transparency

Daily Cash Reporting

Working Capital Needs

Cash Flow Forecasting

(Pool Participants)

slide6

Objectives - Centralized Liquidity Management

  • Create a global account structure, while streamlining & maintaining a local banking infrastructure
  • Obtain centralized visibility and control to access global cash to fund business growth
  • Eliminate all in-country borrowing facilities
  • Enable multi-currency off-set and eliminate FX transactions to manage liquidity
  • Improve returns on overnight deposits/reduce costs on borrowings
  • Establish global reporting capabilities of all global bank accounts
  • Adopt a solution that complies with internal standards and security requirements
  • Manage overall Cash Pool position via a single currency
  • Overcome local resistance to a global solution
centralized liquidity management
Centralized Liquidity Management

Solution

  • Implement a Global Multi-Currency Cash Pool
    • Meets Treasury’s requirements
    • Global Cash Pool keeps local infrastructure intact but has the flexibility to enable changes as dictated by business needs

Criteria for participation

  • Currency is freely convertible
  • Legal entity is permitted to open an account (local and/or foreign currency) offshore
pall s cash pool
Pall’s Cash Pool
  • Began operations in July 2008
    • Pall Global Treasury, Port Washington, New York
    • Current number of Cash Pool participants: 29
    • Current number of Cash Pool accounts: 34
    • Countries: 19
    • Pooled currencies: 12
global cash pool benefits
Global Cash Pool Benefits

Provides visibility and control of global cash

Provides high flexibility to meet short & long term cash needs

Multiple currencies can be pooled daily from every region of the globe

Automated connectivity between Cash Pool accounts and local bank accounts

All cash in excess of working capital no longer remains idle in-country

Short-term funding vehicle for participating group companies

Eliminated most non-US external debt

Simplified new revolving credit facility

Treasury can invest/borrow in currency of choice

global cash pool benefits cont d
Global Cash Pool Benefits (cont’d)
  • Bank “Pledge” as opposed to “Cross-indemnities” thus avoiding inter-company loans
  • Intercompany loans eliminated
  • Legal entities own bank accounts
  • Cash Pool bank sends statement to legal entity monthly charging arms-length interest
  • Legal entity reconciles g/l to the bank statement as if it were a typical in-country bank account
  • Ability to access the overall Cash Pool balance in a single currency
  • Advantageous borrowing rates for local entities (eliminate local bank margins)
  • Full interest compensation rather than interest enhancement (one currency rate per currency based on overall currency position)
  • Use the Cash Pool for acquisition finance transactions
slide11

Global Cash Pool Benefits (cont’d)

  • Internet based access enables:
    • Access and visibility to all pooled funds from one platform. Third party accounts can be included.
    • Entity funding initiated from one platform
    • Administrative flexibility
global cash pool strategies
Global Cash Pool Strategies
  • Utilization of Cash Pool for funding requirements
    • Pay down external debt
    • Eliminate in-country credit lines
  • Withholding Taxes on account overdrafts
    • Monitor tax treaties with internal tax to assure the most advantageous treaty network is applied
  • Accounting
    • “Buy-in” from all disciplines to assure the Cash Pool did not create accounting entry complications
    • Replacing Inter-company loans with deposits/overdrafts within Cash Pool
    • Potential to offset on a consolidated basis
  • Local Legal Entity Buy-In
    • Economic benefit
    • Education and communication with local entities to assure compliance with the new structure
global cash pool strategies1
Global Cash Pool Strategies
  • Establishing automated two-way transfers
    • Detailed process required assistance from local entity, local bank in conjunction with BMG and Corporate Treasury
  • Continual adjustments to targets/ triggers to assure minimal liquidity remains in-country. Excess funds no longer remain in local bank accounts, but in cash pool accounts. Accurate cash forecasting is critical.
  • Diversify investments
  • Use Cash Pool to hedge currency exposures via plain vanilla FX Spot deals
slide14

Global Cash Pool overview

All account balances in multiple currencies are viewed as just one account with one balance = single transfer to steer pool

37 currencies supported

USD

GBP

EUR

CHF

JPY

SGD

liquidity management model for companies integrating requirements
Liquidity management model for companiesIntegrating requirements

Funding or

Investment

Treasury

Pool bank

Centralization

1

Local

customer

account

Cash Pool bank

account

Group Companies

Relationship banks

Local

customer

account

Cash Pool

Bank account

UK

Japan

liquidity management model for companies integrating requirements1
Liquidity management model for companies Integrating requirements

Funding or

Investment

Treasury

2

Local customer

BMG account

Translation

Pool bank

Centralization

Local customer

BMG account

JPY 550M

+

GBP 6M

=

(USD 3M)

1

Group Companies

Relationship banks

UK

Japan

liquidity management model for companies integrating requirements2
Liquidity management model for companies Integrating requirements

3

Funding or

Investment

Treasury

2

Pool bank

Centralization

JPY 550M

+

GBP 6M

+

USD 3M

=

USD 0M

1

Group Companies

Relationship banks

UK

Japan

slide18

Global Cash Pool Solution

U

S

D

E

U

R

U

S

D

GBP

J

P

Y

= 0

U

S

D

S

G

D

CHF

Local customer account balances

Cash Pool balance

(1)

Treasury

Funding

(2)

Cash Pool

Balance

(3)

slide19

Global Cash Pool: True interest compensation

Cash Pool

USD account

balances

Positive

Interest result

Set-off

Cash Pool

conditions

Step 1

Step 2

Step 3

Step 4

Investment rate

= e.g. 20bp

20bp

20bp

USD

USD

USD

USD

20bp

USD

10bp

USD

Borrowing rate

= e.g. 30bp

USD

USD

global cash pool considerations
Global Cash Pool - Considerations
  • Regulatory Law:
  • Thin capitalization rules and stamp duty may apply in case of intercompany loans
  • Transfer Pricing: set Cash Pool margins at arms length and clearly document to avoid penalties
  • Notional pooling and full off-set is allowed in the Netherlands. No cross-guarantees required under central banking regulations
  • Tax:
    • Withholding tax could apply on interest charged. In Netherlands no withholding imposed
    • Tax authorities could view extended overdrafts on a cash pool account as a disguised liability
  • Accounting:
      • No intercompany loan administration and FX Swap contract administration
      • Apply full off-setting on the balance sheet
cash pooling is it right for your company
Cash Pooling - Is it right for your company?
  • Gather Data
    • Do a feasibility study – make a case to management via a cost/benefit analysis
    • Define an effective solution – work closely with corporate tax and legal advisors (physical/notional or both, Cash Pool leader, pool margins, countries, etc)
  • Analyze Tax and Regulatory aspects
    • Review each country’s jurisdiction specific rules
  • Negotiate fixed Cash Pool fees with provider
  • Obtain Crucial “Buy-In” From global operations
  • Step-by-step Implementation – account set-up, legal documentation, set authorities, define processes for participants
  • Manage from a central location (USA, Europe)
feasibility study
Feasibility Study

Required Information:

  • Balances (debit & credit) for a representative period (e.g. 1 month) of a selected group of companies
  • For all accounts (local and foreign currency) including local bank interest conditions
  • Working capital loans you would like to dismantle
  • Local credit lines and cost thereof
  • Local deposits with 3rd party banks
cash pooling high level summary
Cash Pooling - High Level Summary
  • A centralized Treasury fosters:
    • Global adoption of standardized policies and procedures
    • A common approach towards global liquidity management
    • A sound foundation that enables the implementation of a robust global Cash Pool product
  • Global Cash Pool enables:
    • Aggregation of different currencies from different countries into one common currency
    • Cash in excess of working capital at the in-country level to no longer remain “trapped” or subject to local investment/borrowing vehicles
    • Short term funding in the currency of choice without the traditional reliance of inter-company loan structures
objectives
Objectives
  • Add discipline to intercompany settlement process
  • Reduce the number of intercompany flows to reduce FX and transfer cost
    • one monthly settlement per group company
  • Reduce/avoid cut off time and value dating issues
    • guaranteed settlement with proper value date
  • Improve and simplify the monthly reconciliation process
    • Internet based access for reporting and file upload/download purposes
  • Integrate netting with other cash management requirements
    • liquidity (investment / funding) management
    • hedge policy
global multilateral netting
Global Multilateral Netting
  • Multilateral netting is management of cross-border payments among multiple entities, resulting in a single net receipt or payment to each participant in the participants' functional currency.
  • The a process designed to organize and simplify the settlement of inter-company payments on a fixed customized periodic schedule. (third party payments can be included)
global netting benefits
Global Netting Benefits

Pall implemented Netting in November 2008

  • No bank accounts need to be opened
  • Increased efficiency in managing inter-company flows
  • Imposes standardization and discipline across the group
  • Reduce payments between legal entities
  • Centralized versus decentralized FX
  • Cost savings in:
      • Transfer costs reduced based on reduction in the number of settlements (approx.: 80% - 90%)
      • FX cost reduced based on reduction in transactions (approx.: 80% - 90%)
      • Elimination of value day loss
gross vs net intercompany flows
Gross vs. Net - Intercompany Flows
  • Average Reduction of Intercompany flows:
  • Before netting:
    • gross payment volume between group companies ; per annum : USD 1.2B
  • After netting:
    • net payment volume of intercompany payments between group companies ; per annum USD 590M
  • Reduction of 52%!
slide29

Gross vs. Net - Intercompany Payments

  • Average Reduction of Intercompany payments:
  • Number of payments before netting:
    • Per annum : 6,405
  • Number of payments after netting:
    • Per annum : 674
  • Reduction of 89%!
global netting mechanics
Global Netting - Mechanics

Before

After

AU

US

AU

US

Netting

center

DE

UK

DE

UK

SG

SG

global netting transactions
Global Netting - Transactions
  • SALES
  • Trade
  • Vendor
  • FINANCIAL
  • Inter-company loans & interest
  • Royalties & dividends
  • Management & service-fees
  • Internal FX hedging contracts
  • External FX hedging contracts
global netting monthly schedule
Global Netting – Monthly Schedule

1: Send inter-company and vendor invoice payments to Netting center

2: View preliminary results and make changes when needed

3: Execute Final netting FX Spot deals

4: Run final netting

5: Execute all Netting settlements same day value

6: Reconcile AP&AR

netting is it right for you
Netting: Is it right for you?
  • Gather Data
    • Do a feasibility study – make a case to management via a cost/benefit analysis
    • Define an effective solution – work closely with Accounting (Cash Netting leader, currencies, countries, etc)
  • Obtain “Buy-In” From global operations
  • Step-by-step Implementation, legal documentation, set authorities, define processes for participants.
  • Manage from a central location (USA, Europe)
feasibility study what is needed
Feasibility study: What is needed?
  • Intercompany Transactions for a representative period (e.g. 1 month) of a selected group of companies
  • For all countries & currencies
  • Vendor Payments (International)
pall bmg
Pall & BMG

QUESTIONS ?