Walking the TalkBest Practice in Treasury Management

1
Walking the Talk-Best Practice in Treasury
Management
FMOA CONFERENCE 10 November 2006

• Brett Johanson Director
• Asia-Pacific Risk Management Limited

2
Road Map

• Define treasury management best practice
• Treasury management policy
• Implementation of treasury policy practical
  observations

3
Definition Best Practice

• A successful treasury function has the following
  themes-
• Thorough understanding of the underlying business
  and is an integral part.
• Treasury objectives aligned with those of the
  business.
• Clear, unambiguous policies and procedures so
  there is no doubt how these risks are managed.
• Protect, enhance economic value over the medium
  to longer term.
• People with the skills and experience.

4
Treasury Best Practice

• Matthew Huru- Treasurer DSG International plc
• best in class is when the treasury team works
  closely with the business in achieving the
  companys objectives to create and protect
  shareholder value. The main drivers in achieving
  this are robust policies, effective
  communication, and most importantly great
  people

5
Treasury Management Policy

• Identifies, monitors, manages and reports all
  treasury risks/exposures
• Approves treasury management products
• Clear control limits and delegated authorities
• Performance benchmarks the policy and management
  discretionary decisions

6
Policy Design Phase

• A lot of faith placed on treasury
  policies..justified?..how well have they been
  designed?
• Top-down and bottom-up analysis
• Sensitivity of pricing, volumes, margins to
  financial risks.
• Sensitivity to economic cycles, CPI.
• Natural hedges and offsetting risks.
• Stress-test candidate hedging policies against
  variety of rate scenarios over time.

7
Practical Observations

• Pro-active risk management
• Plot current and projected risk position
• Regular formal treasury meetings
• Agree on the risk management strategy and target
  rates
• Remember a risk manager first a value
  enhancer second
• Manage to policy control limits
• Use the right mix of productsoptions vs fixed
  rate
• Promote active rather than passive management
• Reprofile interest rate hedging profile

8
Active Treasury Management
9
Other Points

• NZIFRS
• ensure the Board is fully informed of the
  compromises and conflicts hedge accounting has to
  treasury best practice.
• Separate the funding and interest rate decision.
• Investigate and actively manage other material
  risks
• Commodity, oil, fuel, metal price risk

10
Walking the Talk-Best Practice in Treasury
Management
FMOA CONFERENCE 10 November 2006

• Brett Johanson Director
• Asia-Pacific Risk Management Limited