Cash Management international - DerTreasurer€¦ · Cash Management international ... Market Cap (31st Dec 2013): 28 ... Intercompany Clearing for all subsidiaries established

Cash Management international

Die Herausforderungen in Emerging Markets

Jörg B. Bermüller

Head of Cash & Risk Management

25. Juni 2014

Agenda

Cash Management in Emerging Markets

Summary

Cash Management international | 25. Juni 2014 2

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Treasury set-up

Company Overview 1

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Founded in 1668

66 countries

over 38,000 employees

Ownership: 70% Merck family / 30% free float

Market Cap (31st Dec 2013): 28.315bn EUR

€11.1 billion total revenues in 2013

Company Overview

Our divisions

Biopharmaceuticals

Innovative prescription

medicines to treat, for

example, cancer and

multiple sclerosis.

Over-the-counter

pharmaceuticals

Non-prescription

pharmaceuticals, such as

products for everyday

health protection or to

provide fast relief of colds

and pain.

High-tech chemicals

Specialty chemicals, such

as liquid crystals for high-

tech displays or effect

pigments for coatings and

cosmetics.

Life science tools

Innovative tools and

laboratory supplies for the

life science industry.

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Merck Serono Consumer Health Performance Materials Merck Millipore

Company Overview

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Company Overview

Global Presence

Agenda


Summary


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Treasury set-up

Company Overview 1


Liquidity management

FX and interest rate risk management

Asset and liability management

Guarantee management

Working capital management

Central policy-making competencies

Optimizing financial processes

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Treasury set-up

Responsibilities


Focus on the underlying operating business

Limiting liquidity and market risk

No risk position without a limit and monitoring

Approved instruments and counterparties only

Segregation of duties

Transparent and audit proved documentation

Centralized Treasury function

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Treasury set-up

Principles

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Treasury set-up

Inhouse Bank Tools

182 subsidiaries

62 countries

36 currencies

1,250 accounts

585,000 invoices

21.1 bn EUR

Intercompany

Clearing Payment Factory

141 subsidiaries

40 countries

16 currencies

291 accounts

27,600 transactions

18.7 bn EUR

Cash Pooling

120 subsidiaries

30 countries

26 currencies

169 accounts

594,000 invoices

40.1 bn EUR

Financial Deals

Status: 2013

Internal

370 loans / deposits

1,230 FX deals

External

240 loans / deposits

9,920 FX deals

Agenda


Summary


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Treasury set-up

Company Overview 1


Distinction between Eastern Europe, BRICs and ODiCs

Eastern Europe

– Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Romania

BRICs

– Brazil, Russia, India and China

ODiCs (Other Difficult Countries)

– Argentina, Chile, Colombia, Ecuador, Egypt, Indonesia, Malaysia, Mexico, Pakistan, Panama,

Peru, Philippines, Puerto Rico, South Africa, South Korea, Taiwan, Thailand, Tunisia, Turkey ,

Uruguay, Venezuela and Vietnam

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Emerging Markets

Scope


Potential Issues

– Moderately to highly regulated countries

– Domestic liquidity management is limited

– Cross border activities regulated

Merck specific

– Local presence in Emerging Markets

– Significantly increasing share of sales

– Cash flow generation

– Centralized Risk Management approach

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Emerging Markets

Characteristics


Scope: Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland

and Romania

Regulation: countries not affected significantly by capital transactions control

Intercompany Clearing for all subsidiaries established

Payment Factory: Estonia, Hungary, Latvia, Lithuania and Poland

– Romania and Bulgaria use the cash management platform for foreign payments to save fees

Cross-border cash pooling allowed to some extent

– Liquidity to be disposed and administered centrally

– Czech Republic, Poland and Hungary participate in the cash pool with local and foreign currency

– Romania only in EUR

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Merck setup in Eastern Europe

Cash Management


Financial FX transaction risks are fully hedged

Operative booked transactions risks in foreign currency are fully hedged

Operative risks from forecasted FX cash flows are hedged byTreasury

Central FX hedging

– Central IC account hedging

– Duty to offer FX hedges to IHB, not to external banking partners

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FX Management


Guarantees

– One banking partner for guarantee business

– All guarantees are captured in one system

– Paperless straight-through-processing: guarantee request, issuance, booking and reporting

– Global monitoring of fees and commissions

– Poland and Hungary are participating

Financing

– Bilateral loans with Merck Financial Services

– No restrictions regarding intercompany financing for those countries

– Entities in Bulgaria, Czech Republic, Hungary, Latvia and Romania use bilateral intercompany loans

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Guarantees and Financing


Scope: Brazil, Russia, India and China

Regulation: countries are highly affected by capital transactions control

Intercompany Clearing established for all BRIC-countries

Payment Factory not allowed due to local restrictions

Cross-border cash pooling is not allowed

Exception: domestic cash pool in China installed

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Merck setup in BRIC-countries

Cash Management



CNY Cash pool structure

Onshore China

Merck Ltd

Cash Pool Header

Banking Partner

Merck (2) Ltd Merck (3) Ltd Merck (4) Ltd


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FX Management in China

Onshore China

Offshore

Merck Financial Services GmbH

CNH account in Frankfurt

CNH

EUR

Merck Ltd Cash Pool Header

CNY


Invoicing in local in Brazil and Russia

Subsidiaries transfer EUR to IHB based on submitted invoices

Exception India: invoicing in local currency legally restricted


Operative booked transactions risks in foreign currency are hedged

Operative risks from forecasted FX cash flows are hedged by Treasury

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FX Management in Brazil, Russia and India


Guarantees

– Brazil and India participate

Financing


– Increase in capital

– Exception: local funding in China

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Merck setup in BRIC-countries Guarantees and Financing


Scope: Argentina, Chile, Colombia, Ecuador, Egypt, Indonesia, Malaysia,

Mexico, Pakistan, Panama, Peru, Philippines, Puerto Rico, South Africa, South

Korea, Taiwan, Thailand, Tunisia, Turkey , Uruguay, Venezuela and Vietnam

Regulation: regulation differs significantly between countries

Intercompany Clearing established for all countries

Payment Factory not allowed due to local restrictions

– Few countries use the cash management platform for foreign payments

Cash pooling: Distinction between restricted countries

– Mexico, Peru and Puerto Rico as not restritced countries are part of the USD-cash pool

– Argentina, Colombia and Venezuela process selected external payments over the USD-cash pool

– All other countries are not part of any cash pool

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Merck setup in ODiC-countries

Cash Management


Distinction between invoicing in local and foreign currency

Invoicing in local currency where legally allowed

– Argentina, Chile, Indonesia, Mexico, Peru, South Africa, South Korea, Taiwan and Thailand

Invoicing in foreign currency (predominantly USD and EUR)

– Colombia, Ecuador, Egypt, Malaysia, Pakistan, Panama, Philippines, Puerto Rico, Tunisia, Turkey,

Uruguay, Venezuela, Vietnam


Operative booked transactions risks in foreign currency are hedged

Operative risks from forecasted FX cash flows are hedged by Treasury

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FX Management


Guarantees

– Mexico, Pakistan, Puerto Rico, South Africa, South Korea, Taiwan, Thailand and Vietnam

participate in the Global Guarantee Facility

Financing


– Increase in capital

– Exception: local funding

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Guarantees and Financing

Agenda


Summary


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Treasury set-up

Company Overview 1


Summary

Achievements

Heads up!

Centralized liquidity

Implementation of cash pools

Reduced borrowing costs

Centralized FX-risk management

Reduced banking partners

Significantly reduced banking fees

Increased transparency

Central guarantee management


Summary

Holding

structure

M&A

activities

China:

SAFE

regulations

Non-resident

accounts

Currency

control/

liberalisation

Administrative

burden

Expect the unexpected

Taxation

changes

Ukraine

crisis

Political

instability


Changing environment, -regulations, -markets

New financial products, -processes, IT development

M&A activities, banking landscape

Cash Management has to fit to your business

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Summary

Closing Remarks

Stay flexible

Time-consuming

Frustrating


Thank you for your attention!

Documents

Cash Management international - DerTreasurer€¦ · Cash Management international ... Market Cap (31st Dec 2013): 28 ... Intercompany Clearing for all subsidiaries established