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Adam Smith AwardsBest Practice and Innovation

2013

© 2013 Citibank, N.A. All rights reserved. Citi and Arc Design is a registered service mark of Citigroup Inc.

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>> Congratulations to our clients for your achievements

in the 2013 Treasury Today Adam Smith Awards

Foreword

I WOULD LIKE TO CONGRATULATE ALL OUR CLIENTS that were recognised in the Treasury Today Adam Smith Awards 2013. Each one is a worthy winner and has demonstrated best practice, ingenuity and hard work to implement treasury solutions that are helping their company to achieve success.

Winning a Treasury Today Adam Smith Award is a wonderful way for our clients to gain the recognition they deserve for their accomplishments and Citi takes huge pride in having played a part.

Ultimately, it is the client that takes the initiative to optimise treasury practices. Our role as banking partner is to work closely with our clients to listen and provide the advice and solutions that help them achieve their goals.

What is evident from these awards is that companies from all sectors are taking steps to improve operational processes and ensure business sustainability. For many, this starts with ensuring all treasury practices are as efficient and cost-effective as possible. The variety of the solutions recognised by the Adam Smith Awards – through cards, FX, technology and helping clients manage their bank relationships – show that there are many different approaches to optimising treasury practices. Implementing the right one, at the right time, therefore requires expertise on both sides of the client-bank relationship.

Furthermore the geographical breadth of the companies commended by the Adam Smith Awards – across Asia Pacific, the Americas and EMEA – clearly shows that the drive to improve treasury is equally relevant to companies looking to make the most of opportunities in both emerging markets and more developed markets that are currently more challenged.

Well done to Coca-Cola Enterprises, Danone Asia, Home Development Mutual Fund, PepsiCo India Holdings, Procter & Gamble, Xerox and Thomson Reuters.

We are honoured to work with all our clients to help them achieve the success they deserve. Please don’t hesitate to contact your Citi representative to find out how we can help you with your treasury management.

Michael GuralnickGlobal Sales Head, Corporate and Public Sector, Treasury and Trade Solutions, Citi

treasurytoday Adam Smith Awards © August 2013 | 3

Coca-Cola EnterprisesBen Haislip, Associate Director, Treasury, US

In 2010, Coca-Cola Enterprises, Inc. (CCE) completed a significant transaction with The Coca-Cola Company, which acquired all of CCE’s North American territory. CCE now serves customers and consumers in Belgium, the UK, France, Luxembourg, the Netherlands, Norway and Sweden. This Highly Commended case study showcases CCE’s success in deploying a new Western European bank structure coupled with new payment software equipped to the latest industry standard.

As Ben Haislip, Associate Director, Treasury explains, “this deployment allowed us to create company efficiencies and simplify our account structure, reduce payment and bank costs and provide business contingency options. In the past, we had several different banking relationships across Western Europe, each using different clearing instruments and rules specific to local geography, providing little visibility into transaction reconciliation and detail billing. We consolidated from ten banks down to five, with Citi and HSBC selected as our two primary banks.”

Citi and HSBC were required to create host-to-host connectivity using ISO 20022 XML version 2 file formats, receiving all bank-billing data electronically. At the same time, CCE replaced its third-party payment factory software, which used a number of applications and interfaces to process payment and collection instruments. The new solution integrated a functionality of CCE’s ERP system (SAP), optimising the financial information flows between CCE and its bank partners by leveraging the SAP Bank Communication Management (BCM) module for straight through processing (STP) and ISO 20022 XML version 2 file format.

As Haislip recalls, “we encountered a few challenges in technology, Single Euro Payments Area (SEPA) regulation adoption and industry standards implementation.”

The first challenge was to fully understand recent changes in technology around SWIFT. CCE performed a cost-benefit analysis and decided a bank host-to-host connection using ISO 20022 XML version 2 file formats was the best standard. Another challenge was the changing EU regulatory dates for SEPA. CCE partnered with its banks to implement local payment types in the XML format as it transitioned certain instruments to SEPA. While implementing SEPA instruments, CCE continued to move its business away from local payment/collection types towards more standardised SEPA XML Credit Transfers (SCTs) and SEPA Direct Debits (SDDs).

CCE’s bank data required updating, including ERP vendor and customer information with the International Bank Account Numbers (IBANs) and Bank Identifier Codes (BICs) needed for SEPA compliant instruments. CCE reviewed sending employee payroll via SEPA and opted to include local payment types in ISO 20022 XML version 2 file

formats until further clarification from the EU in 2013. The results of the project are impressive:

• CCE consolidated its bank relationships.

• Reduced the number of bank accounts.

• Decreased the number of cash pools by 50% and bank fees by 25%.

• Standardised its European bank instruments in order to take advantage of SEPA.

This allowed CCE to organise, control and secure its payments using ISO 20022 XML version 2 file format standards and directly connecting to its two banks. With the deployment of BCM and ISO 20022 XML version two file format, CCE created process efficiency in the procure-to-pay (P2P), order-to-cash (O2C) and record-to-report (R2R) areas of the company by increasing automated reconciliation while also decreasing its overall payment cost and implementing business continuity to connect with Citi and HSBC across Europe.

As Haislip concludes, “CCE was able to perform a project management role by documenting all processes, interfacing procedures for standardisation and ultimately aligning with its finance strategy to achieve world-class performance driven by a functionalised finance organisation aligned to the business.”

Coca-Cola Enterprises, Inc. is one of the world’s largest marketers, producers and distributors of products of The Coca-Cola Company. Our product portfolio includes the world’s greatest brands and beverages. We now serve customers and consumers in Belgium, the UK, France, Luxembourg, the Netherlands, Norway and Sweden.

Rob Harrington, HSBC, Ben Haislip, Coca-Cola Enterprises and Steven Elms, Citi

Highly Commended First Class Bank Relationship Management

Procter & GambleSteve Ader, GBS-Banking Service Manager, Cincinnati, Ohio, US

Operating in approximately 75 countries worldwide, Procter and Gamble (P&G) is the world’s largest consumer products company serving approximately 4.6 billion people around the globe with its renowned brands.

The company has long relied on consumer incentive campaigns for rewarding customer loyalty, but traditional paper cheques have proven costly and inefficient in rebate and money-back guarantee programmes. P&G decided that issuing prepaid debit cards in place of cheques would drive greater productivity, while also reinforcing their brands in the minds of consumers.

P&G turned to long-time banking partner, Citi, to implement a prepaid card solution to replace paper-based rebate and money back guarantee payments. P&G worked closely with Citi Prepaid Services to develop a programme customised to meet the company’s unique requirements. Once in place, the prepaid card programme was universally accepted both internally and externally by consumers as a superior payment method.

As Steve Ader, GBS-Banking Service Manager explains, “now, when P&G sends a rebate or money-back guarantee payment, we do so at a lower cost while benefiting from the opportunity to promote and reinforce our brands with our customers.”

Plus, the streamlined payment method allows for faster processing, and payment delivery to the incentive recipient is much quicker. Because paper processes have been migrated to electronic means, the prepaid card programme enables P&G to more easily reconcile incentive payments. Reports generated by the programme allow P&G to track payments more easily. The company’s internal processes for payment issuance and problem resolution are now far easier to manage. As a result of the overwhelming success of the programme, P&G has expanded the use of prepaid cards to market research payments, sales incentives, product testing and consumer reimbursements, as well as payments associated with special events.

Since implementing the programme, P&G has significantly reduced the number of paper cheques it issues by almost half. This forward-thinking initiative has led to dramatic cost savings measured at approximately 65% for the company; in the two years since P&G started issuing cards they have realised savings between $2.5-$5m. The card programme is one-third the cost of issuing paper cheques and has proven to be a cost-effective alternative that has helped streamline P&G’s payment operations. Now there is less time spent time on production, reconcilement, and cheque issuance, allowing P&G to reallocate valuable resources to more strategic initiatives that further benefit the company’s bottom line.

And, by eliminating the issuance of a large number of incentive cheques and replacing them with cards, P&G has substantially reduced the risk of fraud.

The majority of cards issued by P&G to consumers are produced on 25% recycled composite card stock. P&G celebrated its 175th anniversary in 2012, a milestone that very few companies have achieved. Another equally impressive milestone was also achieved that year, as P&G passed the million card issuance mark. As a result of the overwhelming success of this programme, P&G is currently exploring how prepaid cards can be further utilised across more brands and additional payment opportunities, domestically as well as globally.

While not all countries, regions and cultures are comfortable with cards in general, acceptance continues to grow offering greater opportunities to expand their use. P&G continues to explore new uses for prepaid cards, such as with payments associated with special events. An example of this can be found in P&G’ s recent, highly successful global ‘Thank You Mom’ campaign, the largest such campaign in the company’s history.

Ader concludes, “as an Olympic sponsor, P&G demonstrated support for athletes, their mothers and families through brand specific promotions geared toward raising awareness of the commitment and sacrifice athletes and their families make when undertaking the arduous pursuit of Olympic perfection. With this prepaid card programme in place, P&G now has the ability to deploy cards whenever and wherever this powerful application warrants.”

P&G serves approximately 4.6 billion people around the world with its brands. The company has one of the strongest portfolios of trusted, quality, leadership brands, including Pampers®, Tide®, Ariel®, Always®, Whisper®, Pantene®, Mach3®, Bounty®, Dawn®, Fairy®, Gain®, Charmin®, Downy®, Lenor®, Iams®, Crest®, Oral-B®, Duracell®, Olay®, Head & Shoulders®, Wella®, Gillette®, Braun®, Fusion®, Ace®, Febreze®, Ambi Pur®, SK-II®, and Vicks®. The P&G community includes operations in approximately 75 countries worldwide.

Steven Elms, Citi and David Swainston, Procter & Gamble

4 | treasurytoday Adam Smith Awards © August 2013

Coca-Cola EnterprisesBen Haislip, Associate Director, Treasury, US

In 2010, Coca-Cola Enterprises, Inc. (CCE) completed a significant transaction with The Coca-Cola Company, which acquired all of CCE’s North American territory. CCE now serves customers and consumers in Belgium, the UK, France, Luxembourg, the Netherlands, Norway and Sweden. This Highly Commended case study showcases CCE’s success in deploying a new Western European bank structure coupled with new payment software equipped to the latest industry standard.

As Ben Haislip, Associate Director, Treasury explains, “this deployment allowed us to create company efficiencies and simplify our account structure, reduce payment and bank costs and provide business contingency options. In the past, we had several different banking relationships across Western Europe, each using different clearing instruments and rules specific to local geography, providing little visibility into transaction reconciliation and detail billing. We consolidated from ten banks down to five, with Citi and HSBC selected as our two primary banks.”

Citi and HSBC were required to create host-to-host connectivity using ISO 20022 XML version 2 file formats, receiving all bank-billing data electronically. At the same time, CCE replaced its third-party payment factory software, which used a number of applications and interfaces to process payment and collection instruments. The new solution integrated a functionality of CCE’s ERP system (SAP), optimising the financial information flows between CCE and its bank partners by leveraging the SAP Bank Communication Management (BCM) module for straight through processing (STP) and ISO 20022 XML version 2 file format.

As Haislip recalls, “we encountered a few challenges in technology, Single Euro Payments Area (SEPA) regulation adoption and industry standards implementation.”

The first challenge was to fully understand recent changes in technology around SWIFT. CCE performed a cost-benefit analysis and decided a bank host-to-host connection using ISO 20022 XML version 2 file formats was the best standard. Another challenge was the changing EU regulatory dates for SEPA. CCE partnered with its banks to implement local payment types in the XML format as it transitioned certain instruments to SEPA. While implementing SEPA instruments, CCE continued to move its business away from local payment/collection types towards more standardised SEPA XML Credit Transfers (SCTs) and SEPA Direct Debits (SDDs).

CCE’s bank data required updating, including ERP vendor and customer information with the International Bank Account Numbers (IBANs) and Bank Identifier Codes (BICs) needed for SEPA compliant instruments. CCE reviewed sending employee payroll via SEPA and opted to include local payment types in ISO 20022 XML version 2 file

formats until further clarification from the EU in 2013. The results of the project are impressive:

• CCE consolidated its bank relationships.

• Reduced the number of bank accounts.

• Decreased the number of cash pools by 50% and bank fees by 25%.

• Standardised its European bank instruments in order to take advantage of SEPA.

This allowed CCE to organise, control and secure its payments using ISO 20022 XML version 2 file format standards and directly connecting to its two banks. With the deployment of BCM and ISO 20022 XML version two file format, CCE created process efficiency in the procure-to-pay (P2P), order-to-cash (O2C) and record-to-report (R2R) areas of the company by increasing automated reconciliation while also decreasing its overall payment cost and implementing business continuity to connect with Citi and HSBC across Europe.

As Haislip concludes, “CCE was able to perform a project management role by documenting all processes, interfacing procedures for standardisation and ultimately aligning with its finance strategy to achieve world-class performance driven by a functionalised finance organisation aligned to the business.”

Coca-Cola Enterprises, Inc. is one of the world’s largest marketers, producers and distributors of products of The Coca-Cola Company. Our product portfolio includes the world’s greatest brands and beverages. We now serve customers and consumers in Belgium, the UK, France, Luxembourg, the Netherlands, Norway and Sweden.

Rob Harrington, HSBC, Ben Haislip, Coca-Cola Enterprises and Steven Elms, Citi

Winner Best Card Solution

Procter & GambleSteve Ader, GBS-Banking Service Manager, Cincinnati, Ohio, US

Operating in approximately 75 countries worldwide, Procter and Gamble (P&G) is the world’s largest consumer products company serving approximately 4.6 billion people around the globe with its renowned brands.

The company has long relied on consumer incentive campaigns for rewarding customer loyalty, but traditional paper cheques have proven costly and inefficient in rebate and money-back guarantee programmes. P&G decided that issuing prepaid debit cards in place of cheques would drive greater productivity, while also reinforcing their brands in the minds of consumers.

P&G turned to long-time banking partner, Citi, to implement a prepaid card solution to replace paper-based rebate and money back guarantee payments. P&G worked closely with Citi Prepaid Services to develop a programme customised to meet the company’s unique requirements. Once in place, the prepaid card programme was universally accepted both internally and externally by consumers as a superior payment method.

As Steve Ader, GBS-Banking Service Manager explains, “now, when P&G sends a rebate or money-back guarantee payment, we do so at a lower cost while benefiting from the opportunity to promote and reinforce our brands with our customers.”

Plus, the streamlined payment method allows for faster processing, and payment delivery to the incentive recipient is much quicker. Because paper processes have been migrated to electronic means, the prepaid card programme enables P&G to more easily reconcile incentive payments. Reports generated by the programme allow P&G to track payments more easily. The company’s internal processes for payment issuance and problem resolution are now far easier to manage. As a result of the overwhelming success of the programme, P&G has expanded the use of prepaid cards to market research payments, sales incentives, product testing and consumer reimbursements, as well as payments associated with special events.

Since implementing the programme, P&G has significantly reduced the number of paper cheques it issues by almost half. This forward-thinking initiative has led to dramatic cost savings measured at approximately 65% for the company; in the two years since P&G started issuing cards they have realised savings between $2.5-$5m. The card programme is one-third the cost of issuing paper cheques and has proven to be a cost-effective alternative that has helped streamline P&G’s payment operations. Now there is less time spent time on production, reconcilement, and cheque issuance, allowing P&G to reallocate valuable resources to more strategic initiatives that further benefit the company’s bottom line.

And, by eliminating the issuance of a large number of incentive cheques and replacing them with cards, P&G has substantially reduced the risk of fraud.

The majority of cards issued by P&G to consumers are produced on 25% recycled composite card stock. P&G celebrated its 175th anniversary in 2012, a milestone that very few companies have achieved. Another equally impressive milestone was also achieved that year, as P&G passed the million card issuance mark. As a result of the overwhelming success of this programme, P&G is currently exploring how prepaid cards can be further utilised across more brands and additional payment opportunities, domestically as well as globally.

While not all countries, regions and cultures are comfortable with cards in general, acceptance continues to grow offering greater opportunities to expand their use. P&G continues to explore new uses for prepaid cards, such as with payments associated with special events. An example of this can be found in P&G’ s recent, highly successful global ‘Thank You Mom’ campaign, the largest such campaign in the company’s history.

Ader concludes, “as an Olympic sponsor, P&G demonstrated support for athletes, their mothers and families through brand specific promotions geared toward raising awareness of the commitment and sacrifice athletes and their families make when undertaking the arduous pursuit of Olympic perfection. With this prepaid card programme in place, P&G now has the ability to deploy cards whenever and wherever this powerful application warrants.”

P&G serves approximately 4.6 billion people around the world with its brands. The company has one of the strongest portfolios of trusted, quality, leadership brands, including Pampers®, Tide®, Ariel®, Always®, Whisper®, Pantene®, Mach3®, Bounty®, Dawn®, Fairy®, Gain®, Charmin®, Downy®, Lenor®, Iams®, Crest®, Oral-B®, Duracell®, Olay®, Head & Shoulders®, Wella®, Gillette®, Braun®, Fusion®, Ace®, Febreze®, Ambi Pur®, SK-II®, and Vicks®. The P&G community includes operations in approximately 75 countries worldwide.

Steven Elms, Citi and David Swainston, Procter & Gamble

treasurytoday Adam Smith Awards © August 2013 | 5

Home Development Mutual FundRey Malaya, Vice President, Fund Management Group, Makati City, Philippines

The Home Development Mutual Fund or more popularly known as the Pag-IBIG Fund, is a 33-year-old government institution in the Philippines and was established to develop a sound and viable mutual provident savings system suitable to the needs of the employed and to motivate them to better plan and provide for their housing needs. It was created through a series of Presidential Decrees, Executive Orders and Republic Acts, the latest of which is Republic Act 9679.

At present membership to Pag-IBIG is mandatory for all Filipino employees including Overseas Worker and the informal income sector. All active members have access to the Fund’s different benefit programmes, which include short-term loan programmes, where financial assistance is provided to members to address their immediate needs and its provident savings programme where members’ savings earn annual dividends; and its housing loans which are offered at very affordable interest rates.

Pag-IBIG has over 12 million members worldwide, and disburses billions of pesos in short-term loans yearly. In 2012 alone Pag-IBIG released P51.4 billion under its Multi-Purpose and Calamity Loan Programmes. A percentage of the loan proceeds are released through paper cheques. These paper cheques are prepared manually, often requiring the members to go back to the Pag-IBIG Fund office to pick them up. Moreover, cheques are subject to a minimum of three days clearing, further delaying members’ access to much needed funds.

Considering the Fund’s objective of moving towards a paper-free environment, and after a thorough evaluation process, Citi was mandated by the Pag-IBIG Fund to provide them with fully customised Pag-IBIG prepaid cards for disbursement of short-term loan proceeds and provident benefits, as an alternative to the traditional cheque payments.

Citi’s prepaid card system was the only one that could provide the Pag-IBIG Fund with instant issuance capability, allowing Pag-IBIG to issue the cards to members immediately on site during the loan application process. Upon loading of the cards, the cardholders are notified instantly through SMS, giving them access to funds through any Visa/MasterCard point of sale terminal or through various ATMs nationwide. Online access and a 24/7 Interactive Active Response System is available to cardholders for verification or clarification. The solution has improved efficiency and lowered costs as various manual processes are now automated. Pag-IBIG can also have access to data on how and where members spend the funds, potentially giving Pag-IBIG greater insights as to what type of loans or benefits would be preferred by its members.

As Rey Malaya, Vice President, Fund Management Group points out, “Pag-IBIG’s brand image has been greatly enhanced by the customised Pag-IBIG Prepaid Card, as well as by the discounts members can enjoy in various establishments.”

Citi’s prepaid card solution has also met the objectives of the Fund in moving towards a less-paper operating environment. In addition to instant issuance capability, Citi also integrated with Pag-IBIG Funds’ in-house system, so that cardholder information as well as the amounts to be loaded into each card could be automatically interfaced into Citi’s back-end systems, thereby increasing security and reducing manual processes. Pag-IBIG members can inquire about their card balances and transaction history by calling Citi’s Interactive Voice Response System or by accessing the information online.

Malaya concludes, “as a value added benefit, Citi partnered with Visa to provide discount coupons included in the card envelopes, giving members discounts or complimentary offers at selected partner merchants.”

The Pag-IBIG Citi prepaid card provides for a faster and more convenient and safer way for Pag-IBIG short-term loan borrowers to receive and use their loan proceeds – adhering to the Fund’s commitment of bigger, better and faster service. This is exactly the kind of beneficial consequence that results when government and the private sector work towards a goal.

Home Development Mutual Fund, popularly known as Pag-IBIG (Pagtutulungan sa Kinabukasan: Ikaw, Bangko, Industriya at Gobyerno) Fund created under R.A. 9679, is a government fi nancial institution that operates a national savings system for private and government employees and other earning groups. It provides short-term benefi ts and affordable shelter fi nancing for Filipino workers.

Pag-IBIGFUND

Rey Malaya, Home Development Mutual Fund and Barbara Harrison, Citi

Highly commended Best Card Solution

6 | treasurytoday Adam Smith Awards © August 2013

Thomson ReutersDominic Little, Senior Business Analyst and Banking Implementation Manager, and Gouse Basha Shaik, Senior Manager, Enterprise Solutions Design Team, London, UK

The Consolidated Receivables Project has delivered end-to-end automation for Thomson Reuters and has optimised its cash management. A global team from Thomson Reuters, Citi and Deloitte (which supported the pilot) implemented a global integrated solution that has automated Thomson Reuters’ banking processes; enabling automatic allocation of customer payments to customer open accounts receivables (AR) accounts based on remit information and also auto reconciling of bank statements to general ledger accounts.

Major benefits are:

• Auto payment lots are generated from host-to-host Consolidated Receivable Report (CRR) file transfers from Citi to Thomson Reuters’ server. This has reduced the amount of manual work required to create payment lots in SAP. As a result, efficiency, accuracy and the turnaround time of recording the cash in AR have improved.

• Implementation of auto application parsing rules for remittances (where customer/invoice details are available) has also reduced the manual effort required for cash allocation to the respective invoices.

• For EMEA and Latin America the total volume of transactions processed on the consolidated receivables file rose from 2,146 in January 2012 to 9,299 in March 2013.

• Thomson Reuters experienced an auto upload percentage of 93-95% for EMEA and 40-50% auto application of the auto upload based purely on direct invoice application.

• Centralisation of cheque accounting through lockboxes has resulted in fast fund clearing. Before this project the lockbox process was cumbersome, as allocation details were on the scanned copy of a cheque.

• Auto reconciliation of payment lots using electronic bank statements has reduced the time spent on bank reconciliation. It has enabled it to concentrate on open item management and resulted in fewer open items compared to the legacy process.

• Introduction of electronic bank statements and a bank clearing account concept means Thomson Reuters’ bank reconciliation has been streamlined into a common process across the UK and Europe.

• Executing the direct debit (DD) solution has improved the turnaround time on DD processing and also enhanced mandate management.

As Dominic Little, Senior Business Analysis and Banking Implementation Manager, explains, “overall, the solution has given us greater visibility of our receivables and provided a clear audit trail for a wide range of payment types. As a result, the company’s financial control has been considerably improved.”

Citi, which is Thomson Reuters’ primary bank in EMEA and Latin America, devised a consolidated receivables solution that gives the

company an end-to-end automated flow for cash management. Inbound interfaces were set up with the bank to pull electronic bank statements and consolidated receivables files throughout the day (file availability dependent on the region’s time-zone). These files incorporated all payment types – including wire, ACH, cheque, DD and Boleto (in Brazil) – and automated general ledger postings and auto allocation to the customer account. Outbound interfaces were also designed to send Citi information so that it could process DDs and Boletos.

Thomson Reuters issues an invoice to its customers, which generates an attached Boleto with a unique number (similar to a barcode). Thomson Reuters informs Citi in advance of Boletos that will be received that month. Citi’s interface passes the Boleto information to Thomson Reuters in the same electronic file as all other payment data. Another outstanding feature of the solution is that the technical teams, which are located across the globe, were effectively co-ordinated despite time zone differences to ensure successful implementation across different phases. This strong support continued after the project went live.

As Gouse Basha Shaik, Senior Manager, Enterprise Solutions Design Team, concludes, “regular calls with Citibank helped us to address outstanding issues while a dedicated customer service representative for Thomson Reuters helped to identify and fix any problems immediately, and consequently minimised any impacts.”

Thomson Reuters is the world’s leading source of intelligent information for businesses and professionals. We combine industry expertise with innovative technology to deliver critical news, information and solutions to decision makers in the fi nancial and risk, legal, tax and accounting, intellectual property and science, and media markets, powered by the world’s largest international news organisation.

Dominic Little, � omson Reuters and Barbara Harrison, Citi

Highly commended Best Process Re-engineering Solution

treasurytoday Adam Smith Awards © August 2013 | 7

Danone AsiaYannick Gehin, Regional Treasurer Asia Pacifi c, Singapore

With the help of Citi, Danone participated in the People’s Bank of China’s (PBoC) newly launched pilot scheme for renminbi (RMB) cross-border lending. By pioneering RMB cross-border lending, Danone has been able to complete a critical step in its expansion plans by adding RMB to its treasury management currency basket, and thus leverage surplus RMB in China to finance the net debt of its regional treasury centre (RTC) in Singapore. The structure optimises Danone’s treasury activities to realise improved global liquidity management and greater efficiency.

The transaction sets an important precedent both for Danone and other multinational corporations (MNCs) seeking to include RMB in their global cash pools and optimise liquidity management. It is also a valuable first step in becoming familiar with RMB as an operating currency offshore. By participating in the PBoC’s newly launched pilot scheme for RMB cross-border lending, Danone has positioned itself as a pioneer in RMB cross-border lending and has been able to leverage surplus RMB in China to finance the net debt of the group’s regional treasury centre in Singapore.

As Yannick Gehin, Regional Treasurer Asia Pacific, explains: “Danone has a long-term ambition to enhance global liquidity management and had built up a large onshore RMB surplus in China. Under current regulations, it was not possible to leverage this surplus for inter-company financing purposes. In terms of the pilot scheme, there were a variety of pre-requisites for RMB cross-border lending that Danone needed to satisfy.”

An eligible company must be a registered company in a pilot city, which was Shanghai in Danone’s case, and companies could lend directly or by using funding in its cash pool. They also need to have a structural cash surplus in RMB with no outstanding RMB-denominated borrowings. In order to adhere to transfer pricing regulations, the interest rate was often set with reference to the onshore PBoC benchmark deposit rate. Inter-company contracts were drawn up between Danone’s group offices in China and Singapore with

dedicated accounts in RMB. The loan was then swapped into US dollar, the functional currency for its Singapore-based holding company.

Danone conducted the first transaction under the pilot scheme on 24th January 2013, having obtained approval within three months of Citi initially approaching the company about the pilot scheme. The rapidity with which the transaction was concluded under the pilot scheme and the ability for Danone to achieve its global liquidity ambitions was due largely to the effective communication between Citi, PBoC and Danone.

Gehin concludes: “The time taken to implement this solution and realise the benefits has been remarkable.”

The transaction sets an important precedent both for Danone and other multinational corporations seeking to include RMB in their global cash pools and optimise liquidity management. It is also a valuable first step in becoming familiar with RMB as an operating currency offshore.

Danone is a multinational company (MNC) operating in the food industry. The company holds top positions in healthy food through four businesses: Fresh Dairy Products, Baby Nutrition, Waters and Medical Nutrition. Danone has over 190 production plants and around 102,000 employees. In 2012, the company generated sales of over €20 billion, of which more than 50% were in emerging countries.

Steven Elms, Citi collecting on behalf of Yannick Gehin

“ The time taken to implement this solution and realise the benefits has been remarkable. ”

Highly commended Best in Class Benchmarking

XeroxStuart Kirk, Head of Global FX Risk Management, Dublin, Ireland

With over 25 years of FX experience, Stuart Kirk, Head of Global FX Risk Management, was able to identify some of the key areas of risk to the firm and potential shortcomings. “We needed to do three things,” says Kirk, based at Xerox’s Treasury Centre in Dublin. “We need to look at our exposures on a consolidated basis and quantify the total impact of FX volatility on our earnings; to increase the transparency of our hedging programme to ensure cost/risk optimisation; and to come up with a more systematic approach to FX hedging, which ensures we consistently meet the corporation’s risk management objectives. The project was about clarity, measurability, and the ability to benchmark performance against alternative solutions.”

Xerox engaged CitiFX Corporate Solutions to help design a rules-based programme which was transparent, easy to implement and which would more closely align its hedges with its exposures thus reducing the period-on-period impact of FX volatility on its bottom line. Treasury back-tested the solution against 20 years of data to demonstrate it improved Xerox’s profitability by reducing risk and minimising hedging costs. The economic and risk management benefits of the solution were compelling and convinced Xerox’s treasurer and CFO to adopt it. Xerox policy dictates that all long-term hedges must qualify for hedge accounting treatment so forecast accuracy was paramount.

“The solution has smoothed the impact of currency volatility on our results while enhancing transparency and cost effectiveness,” says Kirk.

The value of the solution has been particularly evident in the past 12 months as the yen, to which Xerox has significant exposure, has experienced some sizeable changes in value. The solution has enabled Xerox to successfully navigate through volatile market conditions while achieving a better all-in hedge rate and large cost savings.

The key drivers of this innovative dynamic layered hedging (DLH) solution are relative valuation, which compares current levels of a currency pair to its fair value, and cost of hedging, which is driven by carry, ie the forward point adjustment, and volatility, which dictates the option premium. Using both these inputs, the model will select the maturity of each hedge and the optimum hedging instrument. For example, if a currency is overvalued and carry is in the company’s favour, the model will favour hedging more now and less later using forwards. If the currency is undervalued and carry is negative, the model favours hedging less now and more later via options. In between, the model selects the appropriate mix. Hence it gives the company the benefit of a systematic programme which guarantees a pre-agreed level of hedging but allows the flexibility to adjust the maturity of the hedges or the type of instrument used according to prevailing market conditions. With regard to relative value, uniquely, the DLH strategy incorporates Citi’s World Exchange Rate Model (WERM), which is a new proprietary measure of fair value exchange rates.

The final piece of the jigsaw was to design a system which could deliver the product. Again Xerox and Citi collaborated to come up with the CitiFX Exposure Management toolset which is accessed via Citi’s corporate FX portal, CitiFX Pulse. This allows Xerox to input exposures, run its strategy, execute and confirm trades and monitor changes on a single platform. The system links directly to Xerox’s treasury management system (TMS), allowing forecasted exposures and existing hedges to be uploaded seamlessly.

The main benefits are:

• Systematic, rules-based hedging programme which is closely aligned to underlying exposures and is clearly understood by senior management.

• More effective risk management with built-in flexibility to provide potential for real economic benefit.

• Robust relative-value model based on 20 years of back-tested data.

• Simple to implement and track performance.

As Kirk concludes: “It eliminates much of the emotion and randomness in the hedging decision by introducing a pre-agreed set of metrics designed to optimise both the hedge ratio and the hedging instrument based on valuation and carry.”

Since the invention of Xerography 75 years ago, the people of Xerox have helped businesses simplify the way work gets done. Today, we are the global leader in business process and document management, helping people be more effi cient so they can focus on their real business. Headquartered in Norwalk, Conneticut, US the company has more than 140,000 Xerox employees serving clients in 160 countries.

Cormac Donohoe, Citi and Stuart Kirk, Xerox

8 | treasurytoday Adam Smith Awards © August 2013

Danone AsiaYannick Gehin, Regional Treasurer Asia Pacifi c, Singapore

With the help of Citi, Danone participated in the People’s Bank of China’s (PBoC) newly launched pilot scheme for renminbi (RMB) cross-border lending. By pioneering RMB cross-border lending, Danone has been able to complete a critical step in its expansion plans by adding RMB to its treasury management currency basket, and thus leverage surplus RMB in China to finance the net debt of its regional treasury centre (RTC) in Singapore. The structure optimises Danone’s treasury activities to realise improved global liquidity management and greater efficiency.

The transaction sets an important precedent both for Danone and other multinational corporations (MNCs) seeking to include RMB in their global cash pools and optimise liquidity management. It is also a valuable first step in becoming familiar with RMB as an operating currency offshore. By participating in the PBoC’s newly launched pilot scheme for RMB cross-border lending, Danone has positioned itself as a pioneer in RMB cross-border lending and has been able to leverage surplus RMB in China to finance the net debt of the group’s regional treasury centre in Singapore.

As Yannick Gehin, Regional Treasurer Asia Pacific, explains: “Danone has a long-term ambition to enhance global liquidity management and had built up a large onshore RMB surplus in China. Under current regulations, it was not possible to leverage this surplus for inter-company financing purposes. In terms of the pilot scheme, there were a variety of pre-requisites for RMB cross-border lending that Danone needed to satisfy.”

An eligible company must be a registered company in a pilot city, which was Shanghai in Danone’s case, and companies could lend directly or by using funding in its cash pool. They also need to have a structural cash surplus in RMB with no outstanding RMB-denominated borrowings. In order to adhere to transfer pricing regulations, the interest rate was often set with reference to the onshore PBoC benchmark deposit rate. Inter-company contracts were drawn up between Danone’s group offices in China and Singapore with

dedicated accounts in RMB. The loan was then swapped into US dollar, the functional currency for its Singapore-based holding company.

Danone conducted the first transaction under the pilot scheme on 24th January 2013, having obtained approval within three months of Citi initially approaching the company about the pilot scheme. The rapidity with which the transaction was concluded under the pilot scheme and the ability for Danone to achieve its global liquidity ambitions was due largely to the effective communication between Citi, PBoC and Danone.

Gehin concludes: “The time taken to implement this solution and realise the benefits has been remarkable.”

The transaction sets an important precedent both for Danone and other multinational corporations seeking to include RMB in their global cash pools and optimise liquidity management. It is also a valuable first step in becoming familiar with RMB as an operating currency offshore.

Danone is a multinational company (MNC) operating in the food industry. The company holds top positions in healthy food through four businesses: Fresh Dairy Products, Baby Nutrition, Waters and Medical Nutrition. Danone has over 190 production plants and around 102,000 employees. In 2012, the company generated sales of over €20 billion, of which more than 50% were in emerging countries.

Steven Elms, Citi collecting on behalf of Yannick Gehin

“ The time taken to implement this solution and realise the benefits has been remarkable. ”

Winner Best Foreign Exchange Solution

XeroxStuart Kirk, Head of Global FX Risk Management, Dublin, Ireland

With over 25 years of FX experience, Stuart Kirk, Head of Global FX Risk Management, was able to identify some of the key areas of risk to the firm and potential shortcomings. “We needed to do three things,” says Kirk, based at Xerox’s Treasury Centre in Dublin. “We need to look at our exposures on a consolidated basis and quantify the total impact of FX volatility on our earnings; to increase the transparency of our hedging programme to ensure cost/risk optimisation; and to come up with a more systematic approach to FX hedging, which ensures we consistently meet the corporation’s risk management objectives. The project was about clarity, measurability, and the ability to benchmark performance against alternative solutions.”

Xerox engaged CitiFX Corporate Solutions to help design a rules-based programme which was transparent, easy to implement and which would more closely align its hedges with its exposures thus reducing the period-on-period impact of FX volatility on its bottom line. Treasury back-tested the solution against 20 years of data to demonstrate it improved Xerox’s profitability by reducing risk and minimising hedging costs. The economic and risk management benefits of the solution were compelling and convinced Xerox’s treasurer and CFO to adopt it. Xerox policy dictates that all long-term hedges must qualify for hedge accounting treatment so forecast accuracy was paramount.

“The solution has smoothed the impact of currency volatility on our results while enhancing transparency and cost effectiveness,” says Kirk.

The value of the solution has been particularly evident in the past 12 months as the yen, to which Xerox has significant exposure, has experienced some sizeable changes in value. The solution has enabled Xerox to successfully navigate through volatile market conditions while achieving a better all-in hedge rate and large cost savings.

The key drivers of this innovative dynamic layered hedging (DLH) solution are relative valuation, which compares current levels of a currency pair to its fair value, and cost of hedging, which is driven by carry, ie the forward point adjustment, and volatility, which dictates the option premium. Using both these inputs, the model will select the maturity of each hedge and the optimum hedging instrument. For example, if a currency is overvalued and carry is in the company’s favour, the model will favour hedging more now and less later using forwards. If the currency is undervalued and carry is negative, the model favours hedging less now and more later via options. In between, the model selects the appropriate mix. Hence it gives the company the benefit of a systematic programme which guarantees a pre-agreed level of hedging but allows the flexibility to adjust the maturity of the hedges or the type of instrument used according to prevailing market conditions. With regard to relative value, uniquely, the DLH strategy incorporates Citi’s World Exchange Rate Model (WERM), which is a new proprietary measure of fair value exchange rates.

The final piece of the jigsaw was to design a system which could deliver the product. Again Xerox and Citi collaborated to come up with the CitiFX Exposure Management toolset which is accessed via Citi’s corporate FX portal, CitiFX Pulse. This allows Xerox to input exposures, run its strategy, execute and confirm trades and monitor changes on a single platform. The system links directly to Xerox’s treasury management system (TMS), allowing forecasted exposures and existing hedges to be uploaded seamlessly.

The main benefits are:

• Systematic, rules-based hedging programme which is closely aligned to underlying exposures and is clearly understood by senior management.

• More effective risk management with built-in flexibility to provide potential for real economic benefit.

• Robust relative-value model based on 20 years of back-tested data.

• Simple to implement and track performance.

As Kirk concludes: “It eliminates much of the emotion and randomness in the hedging decision by introducing a pre-agreed set of metrics designed to optimise both the hedge ratio and the hedging instrument based on valuation and carry.”

Since the invention of Xerography 75 years ago, the people of Xerox have helped businesses simplify the way work gets done. Today, we are the global leader in business process and document management, helping people be more effi cient so they can focus on their real business. Headquartered in Norwalk, Conneticut, US the company has more than 140,000 Xerox employees serving clients in 160 countries.

Cormac Donohoe, Citi and Stuart Kirk, Xerox

treasurytoday Adam Smith Awards © August 2013 | 9

India is expected to continue to be on the growth curve with most forecasts pegging GDP growths between 7%-8% over the next five years. PepsiCo India Holdings Private Limited (PepsiCo) has grown into one of the largest and fastest growing food and beverage businesses in India.

PepsiCo worked with Citi on a re-engineering project which facilitated end-to-end seamless automation of receivables processing in a scalable and sustainable manner. Over the past 18 months, PepsiCo has realised benefits in terms of liquidity management, cash flow planning and transaction reporting in India, a market of high strategic importance for the company. PepsiCo Senior Management is benefiting from risk mitigation and improved compliance too. Significant administrative cost savings have also been realised, which has facilitated the reduction of 6,650 man hours once the accounting of all electronic transfers was centralised and then moved from a manual upload process to a host-to-host structure. Treasury has improved cash forecasting and fund planning, resulting in a reduction of bank charges by $120k.

Sales and marketing have seen the turnaround on deliveries reduce and working relationships with over 3,000 distributors have also been enhanced as a result of faster turnaround times and automated real-time alerts via email and SMS for payments. Migration of all non-core activities was moved to the shared services centre (SSC) to automate cash management processes and reduce the manual risks.

As Deepak Kini, Region Reporting and Shared Services Director states, “this solution had to be designed to address challenges specific to India, such as a predominantly paper-based economy, complex regulatory environment varying across states, vast geographical spread and cultural diversity.”

Implemented in a timeline of only one and a half years, the solution allowed PepsiCo to re-engineer its workflow processes, while also dramatically cutting costs. An innovator in introducing host-to-host functionality in India, the migration has resulted in the simplification of operations, standardisation of processes across the country and automation of the collection process.

The re-engineering strategy adopted by PepsiCo was an endeavour to improve treasury functions, working capital management and drive efficiencies in the business. This involved continually rethinking, automating or outsourcing numerous end-to-end steps from

initiation of payment by the final consumer to reconciliation of the transaction in its global records.

As Kini describes, “we first moved the accounting centrally to PepsiCo’s SSC by requesting Citi to send the MIS only to the SSC. These transactions used to be accounted for manually at the SSC and the bank reconciliation was also manual. We then started getting files from Citi which used to get uploaded. To improve the process further, we moved the accounting of the transaction to a host-to-host structure. Within 60 minutes of the funds hitting PepsiCo’s account with Citi, the accounting entry in SAP is automatically passed and the goods can be shipped directly to the distributors.”

Bank reconciliation is now automated and since the accounting happens through an automatic bank feed, there are no open items in the reconciliation for all e-Collect transactions. Citi designed the system architecture and data workflow where data travels in a secure environment between Citi and PepsiCo. An e-Collect system with automatic remitter identification for the PepsiCo sales and finance team enabled automatic reconciliation in SAP and the sending of confirmations of credit via SMS or email to dealers and distributors

Kini concludes, “the host-to-host migration has resulted in the simplification of operations, standardisation of processes across the country and across the beverages and foods businesses and automation of the collection process.”

PepsiCo India HoldingsDeepak Kini, Region Reporting and Shared Services Director, Haryana, India

PepsiCo is a global food and beverage leader with net revenues of more than $65 billion and a product portfolio that includes 22 brands that generate more than $1 billion each in annual retail sales. Our main businesses – Quaker, Tropicana, Gatorade, Frito-Lay and Pepsi-Cola – make hundreds of enjoyable foods and beverages.

Deepak Kini, PepsiCo India Holdings and Steven Elms, Citi

Highly commended Asia Pacific Regional Award for Best Practice

10 | treasurytoday Adam Smith Awards © August 2013