Treasury Tools for Balance Sheet Management at ABX LOGISTICS

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Treasury Tools for Balance Sheet Managementat
ABX LOGISTICS
Case Study

• Jean-Claude Jossart
• Treasury Project Manager

Yvo K. Vercouteren Corporate Treasurer
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Presentation Outline
Introducing ABX LOGISTICS Who are we ?

• A Specific environment
• Corporate Treasury strategy
• The Corporate Treasury infrastructure
• Strengthen the Balance Sheet from Treasury ?
• Other areas of Corporate Treasury

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Corporate Introduction
ABX LOGISTICS, the Belgian Railways owned
transport and logistics company, recently
established, is today one of the world's front
runners among logistics service providers, with
an international network covering 35 countries,
500 Offices, which employs 15,000 people and has
a consolidated sales equal to 2,7 billion euros
in 2002.

• ABX LOGISTICS Worldwide HQ in Brussels, recently
  established, is in charge of the Group
  coordination with a minimum staff (35 people) and
  covers the following main topics
• Legal aspects
• Buying procurement
• Financial reporting and controlling
• Treasury co-ordination
• IT coordination and group projects

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ABX LOGISTICS Worldwide

• Legal One-stop-shopping
• ABX LOGISTICS Worldwide combines all
  the skills of professional transport and
  logistics under one banner distribution,
  storage, consultancy, We offer one integrated
  logistics solution, worldwide The total
  logistics Matrix
• Think global, act local
• As it manages these services and
  products as an integrated whole, ABX LOGISTICS
  can offer all-in, modular logistics solutions
  that meet the specific needs of its customers at
  local level.Although we have one global
  strategy, we respect the business culture of each
  region

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Corporate Environment
Out of a Belgian Company ABX LOGISTICS has in a
3 years time, i.e. from 1998 to 2001 emerged into
an global international one. Recently the
company was set-up as a separate holding with its
own managing entities. Its area of activity
switched from a local market to a world-wide one.
All this was possible keeping into account the
slackening of the economic situation in 2002 and
2003 and the uncertainties concerning the general
economic evolution. The Group has achieved
spectacular growth through a combination of
massive investment and strategic acquisitions of
international companies.

• One inevitable outcome of acquiring so many local
  service providers in such a short time frame was
  an inconsistent network of local sites underlying
  
• The management of undercapitalized entities
• The need to improve ABX LOGISTICS net worth ratio
• Ensure a positive return on the cost of
  acquisitions and development

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ABX Logistics Sales
The ABX LOGISTICS Matrix in figures Product
Sales by Region
Spread by Country/Region
Spread by Product
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Balance Sheet Issues
Balance Sheet Issues - Conceptual Introduction
Within ABX LOGISTICS, the ability to effectively
manage capital, while remaining within the
constraints of a realistic balance sheet
structure, is essential to financial stability.
This ability grows ever more important are our
industry constrains, where increasing limits on
revenue growth are accompanied by steady expense
growth. ABX LOGISTICS treasury actions focuses
on asset/liability management, and the challenges
that arise in capitalizing an endowed
institution. Although content addresses the
entire balance sheet, information will be
concentrated on working capital decisions, and
the effects that capital decisions have on
working capital.
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Balance Sheet Issues
Management of Balance Sheet is bounded to
Working Capital
Aggressively managing the balance sheet
continues to be an integral part of the ABX
LOGISTICS strategy. As part of this strategy,
Cash Management, Balance Sheet Risk Management,
actively manages our different businesses by
ensuring that the allocation of risk and balance
sheet resources is directed to higher-return
and/or strategic growth activities.
Balance Sheet Management should ensure that ABX
LOGISTICS is strongly capitalized and that
capital is structured in the most effective
manner. It also manages capital in our
operational entities. Activities include
recommending and implementing of participation
re-grouping programs, capital issuance.The
critically important balance sheet and capital
resource allocation process resides here
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Balance Sheet Issues
Balance Sheet Issues - Treasury Conceptual
approach
The ABX LOGISTICS Corporate Treasury
infrastructure provides valuable advanced
technical assistance for entities seeking to
optimize growth, lower expenses, or manage risk.
Which of the following tools could help improve
our all-in performance?

• Core-Investment Follow-upEvaluate the
  rate-sensitivity of your core investments.
• Five-Year Capital StrategyExamine the
  relationship between ROA, ROE, and leverage.
• Funding-Strategy ModelsDo our affiliates
  prefer long-term fixed-rate loans? How do we
  measure the profitability of funding these assets
  using advances.
• Marginal Cost of Funds AnalysisDetermine the
  impact of paying up for non-rate-sensitive
  deposits to retain rate-sensitive investment.
• Strategies for SuccessWork with industry
  experts and banks to craft concrete business
  strategies based on your own balance sheet.

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ABX LOGISTICS Worldwide
The Corporate Treasury Philosophy

• Develop strategy for cash and debt management
  (short and long term)
• Provide infrastructure for cash, risk and balance
  sheet management, for the entire organisation
  (profit centre gt lt Service Centre)
• Corporate Treasury is a leading Sovereign
  Function within the Group
• Service Provider Support Benchmarking
• No Back-Office, No payment factory
• Maximising the respect for the global ABX
  LOGISTICS philosophy Think global, act Local

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Corporate Treasury
Global Treasury Infrastructure Concept
CASH POOL
Securitisation
Corporate strategy
Balance Sheet Mgt.
Assets Mgt
CORPORATE TREASURY
Cash Mangement
FX Mgt
Netting
Risk Management
GCS
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Balance Sheet Management Tools Cash Pooling

• MAIN FEATURES
• Notional Pool pool does not even exist at
  balance sheet level
• Cross border with central location (but not
  off-shore respecting corporate governance
• Multi currency no swaps needed, no exchange
  risk, no IAS39 impact
• Administration of intercompany loans facilitated
  or avoided of desirable
• Obtain rapid control over new subsidiaries in key
  financial aspects

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Balance Sheet Management Tools Cash Pooling

• IMPACT OF CHOSEN SOLUTIONS
• Legal Thin Capitalisation rules
• Tax Withholding Tax
• Accounting Treated as local bank accounts
• Gain rapid control over the different new
  acquisitions in key financial aspects
• Cost benefit aspects

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Balance Sheet Management Tools Cash Pooling
Global Cross-Border and Multi-Currency Liquidity
Management Integration ModelHow does it work ?
INTERCOMPANY NETTING
INTRADAY REPORTINGMT 942
INTERCOMPANY LOANS
Cross Border Multi-Currency Notional Pool
MULTIBANK REPORTINGMT 940
INTRO-PAY MT 100-103 (SWEEPS) Regional
Pool AmericasRegional Pool ASIA PACIFIC
Domestic Pool Germany
FX Management
CROSS BORDER TFT
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Balance Sheet Management Tools Receivables
Securitisation
Conduit transactional structure
NEW RECEIVABLES
RELEVANT TRANSFERREDRECEIVABLES
ADDITIONAL DEPOSIT
NET POOL BALANCE
INELIGIBLE RECEIVABLES
Net Funding Amount
SUBORDONATED DEPOSIT
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Balance Sheet Management Tools Receivables
Securitisation
Optimizing Receivables Management
Res.
Outsourcing
-
TOTAL IMPACTSecuritisation(Fixed program term
ltgt Short-Term Roll-Over FundingFactoring(Complet
e or Selective)Total Receivables
Outsourcing(Major Organizational Impact)
Complete
-
Factoring
-
Selective
-
Securitisation
-
-
-
-
-
Organisation.
Cash
B/S
Term
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ABX Global Commerce Solutions
ABX LOGISTICS Outbound Transport Air Sea
Freight Customs Storage Logistics Distribution
Delivery goods B/L
Goods B/L

Exporter
Client
ABX Global Commerce Solutions

Credit insurance

Asset Backed Funding Capability
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Balance Sheet Management Tools Global Commerce
Solutions
Global Commerce Solutions features and B/S
impact Mgt

• GCS is a financial product that completes the
  one-stop shopping for our clients
• Being the dedicated logistic supplier, the legal
  owner of the goods transported (B/L or AWB) and
  having set up a complete pre-approved credit
  insurance , we can obtain Asset Backed funding
• Through a specific minority participation in the
  SPV, the transaction remains off balance sheet

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Balance Sheet Management Tools Fixed Asset
Management

• Sales Lease/Rent back operations
• By definition it is the sale of property by the
  owner-user of the asset to an investor. The
  seller becomes the lessee then leases the
  property back from the investor who becomes the
  lessor.
• Benefits includes - Refinancing your equipment
  with better monthly payment - Creating working
  capital - Turning your long term asset to short
  term - Improving current ratio
• We want to gain access to our assets
  (infrastructure), not ownership and so remain
  flexible to fast adapt to any market change
• In addition we avoid any ballast on our
  balance sheet

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More Corporate Treasury issues Centralizing ?
Choosing to Centralize Treasury infrastructure to
steer balance sheet of the group ?
Decentralised
Centralised

• Centralised Netting
• Centralised Liquidity Mgt.
• Centralised Intra-Group Funding
• Centralised FX Mgt.
• Regional Cash Mgt. Structure
• Streamlined bank relationship and Bank
  Accounts
• Strategic Banking Relationship

• Operating Banking relations
• Different bank accounts
• FX Management
• Liquidity Mgt. Decentralised
• Local Funding Policies
• Local Payment Initiation

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Showing the complexity of the choice facing a
full centralized Treasury
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More Corporate Treasury issues Centralizing ?
Strategy Coordination in ABX Treasury
BENCHMARKING
TREASURY CASH MANAGEMENTSCORECARD
IT / OUTSOURCING
STRATEGY SERVICES SUPPLIERCORPORATE TREASURY
OFFICE
BALANCE SHEET MANAGEMENT
ACTIVITY BASEDCOSTING
PROJECT MANAGEMENT
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Balance Sheet Management
Weighted Average Cost of Capital - WACC Capital
Structure The WACC is the weighted average of
the cost of equity and the cost of debt based on
the proportion of debt and equity within ABX
capital structure. The proportion of debt is
represented by D/V, a ratio comparing the
company's debt to the company's total value
(equity debt). The proportion of equity is
represented by E/V, a ratio comparing the
company's equity to the company's total value
(equity debt). The WACC is represented by the
following formula WACC Re x E/V Rd x (1 -
corporate tax rate) x D/V.
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More Corporate Treasury issues Outsourcing
Operations ?
ABX Treasury contains certain areas eligible for
Outsourcing based on

• Market perspective (Issues and Innovations)
• Criteria for Outsourcing (Typical Corporate
  Profile for Outsourcing)
• Goals Objectives (Why outsourcing, and for
  which Benefits ?)
• Implementation process (Our approach and the
  different steps)
• Conclusion

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More Corporate Treasury issues Outsourcing
Operations ?
Strategies for Change Market Perspectives

• Issues and Innovations - Lean treasury
  organizations Arguably, the most
  important and vexing challenge facing treasurers
  is getting the human resource equation
  right.
• Centralize, reengineer and automate
  Those organizations which have been successful in
  their human resource allocation have centralized
  treasury activities, reengineered their
  processes and implemented automation tools to
  enable the most effective utilization
  of human resource.
• Addressing credit and liquidity constraints
  Liquidity and credit constraints have been a
  primary focus of many treasurers during the
  economic slowdown of the past 2 years
• Effective cash flow forecasting
  Companies that have implemented effective cash
  flow forecasting have found that they are able to
  manage their borrowing activities more
  effectively and plan liquidity needs more
  precisely.
• Improving working capital management

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Outsourcing Profile
Typical Corporate Profile for Outsourcing

• Partially Centralised or Decentralised structure
• Global operations in various countries/regions
• Limited internal resources (Staff, Systems,
  procedures)
• Subsidiaries with funding mismatches
• Interest in outsourcing your treasury
  administration
• Wide open Corporate Culture
• Guarantee of efficient and safe alternatives

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Why Outsourcing ?
Why Considering Outsourcing Part of Corporate
Treasury ?
Increase your ProductivityMinimise
Administration BurdenAt a time of restructuring
or streamlining your operationsSafe time to
focus on core business activities
Maximise Internal ResourcesHeadcount Office
Systems ExpenditureDuring any economic downturn
or a bear market
Optimise Internal Treasury ProceduresTried and
tested Control ProceduresExperienced Treasury
StaffClear Segregation of duties
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Outsourcing Benefits
What are the real Benefits ?
Allow Treasury to Concentrate on core
business Improve quality of services Reduce
Technology and Operational Risks
Improve the ratio Performance/Responsabilities Ach
ieve Cost Reductions Lower Capital Investment
Optimise Internal Treasury ProceduresIncrease
flexibilityLightening of the process activity
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Project Management
Impact on systemsand processes
What are the effects onManagement Reporting
Internal Communication ?
Technology ImprovementHuman ResourcesTraining
Sub projects coordination
Who is affected by the conversion effects and
what are their training needs ?
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Project Management
Keys of Success

• The planning techniques we cover provide tools
  for establishing a measurable business-relevant
  objective for each project. This approach
  allows us to measure success through the
  customers eyes. When complete, the it steers the
  entire project and, as importantly, it sets
  parameters for the scope of the project and tells
  the sponsor and project manager what NOT to do.
  ABX LOGISTICS approach is the foundation for
  developing a project plan that consists of
  measured achievements, not activities
• Effective portfolio management with control of
  resources

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More Corporate Treasury issues Embracing New
Treasury Principles

Our challenges Our challenges
Make a cash flow analysis of our agencies worldwide Set up an Optimal structure and services arrangements Integrating treasury operations to gain efficiencies Integrating treasury information flows with business operations ERP systems In Order to Increase Efficiency Control Consistent procedures, and specialist defined skills Less errors and time savings Better audit and security Improvement of Technology


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More Corporate Treasury issues ABX Corporate
Governance
The essence of corporate governance (A concept
paper for discussion and comment)
The essential components of ABX organisations
corporate governance arrangements are
Parties
Best Practice Principles
Organisation Specific Integrated Governance
Framework Clear Objectives Responsibilities
Culture Values
Tools
CommunicationDisclosureAccountability
Clear Direction Control Fully informed
Governing Body with Correct Focus Optimised
Performance Satisfied Shareholders
Stakeholders GOOD CORPORATE PERFORMANCE
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Questions
Questions ?Thank you very much.

• Yvo VercouterenCorporate Treasurer
• Tel. [phone]
• Mail vercouteren_at_abxlogistics.com