Cash & Liquidity Management

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TMS Transformation at STMicroelectronics Acknowledging that its treasury resources were not being utilised as efficiently as possible, ST decided that it would review all treasury processes and the relevant technology, with the object of improving automation, control and visibility and implementing an in-house bank. The firm wanted a specialist TMS to be used globally, and which would be able to cope with future requirements. This article describes how the corporate needs were assessed and how the W allSteet Suite system was chosen and implemented, with the ensuing benefits and some remaining challenges.

TMS Transformation at STMicroelectronics

by Giuseppe Amodio, Head of Financial Risk Management, STMicroelectronics

The treasury activities of STMicroelectronics (ST) are centralised at its headquarters in Geneva, Switzerland under the responsibility of the Corporate Treasurer. Regional Treasury centres are located in Singapore (which covers the entire Asia Pacific and Greater China operations), France, Italy and United States.

As a result of its global activities, STMicroelectronics is exposed to financial risks, the most major of which are foreign exchange exposures and interest rate mismatches. ST’s revenues are mainly in USD (the primary currency in the semiconductor industry) with 40% of costs in EUR. Due to its industrial and marketing activities, ST also has some limited exposures to other currencies, especially SGD and CNY.

In anticipation of evolving treasury needs, we looked for a TMS with sufficient 'headroom' to accommodate our potential future requirements.

ST’s interest rate risk exposure arises from the mismatch between its cash investments, which is invested in floating rate instruments, and its fixed financial liabilities. The main fixed interest rate liability is the outstanding 1.50% 2016 convertible bond. ST has also floating rate liabilities in USD (mainly European Investment Bank’s 8 year amortising R&D loans) and EUR (mainly the 2013 Floating Rate Note). Part of the fixed interest liabilities have also been swapped to floating rate and hedged with fixed assets to further reduce the assets and liabilities mismatch.

ST generated a net operating cash flow of $840m in 2007 with $3.5bn gross liquidity and a net positive financial position of $1.2bn as at 31 December. In 2008, the gross cash position has decreased because of M&A activities and a share buy-back program.

Before the implementation of the new Treasury Management System (TMS), treasury activities were supported by SAP Treasury module, which is ST’s ERP and internally created spreadsheets used to complement SAP due to the complexity of some financial instruments. Spreadsheets were also used for cash management and cash forecasting.

Documentation such as payment orders and deal confirmations were produced in hard copy and authorised with physical signatures. Confirmations were sent to counterparties via fax and payments transmitted to our banks using the relevant formats for each country, eg. IBG in Singapore, CCD in USA and MT100 in Switzerland.

TMS transformation

ST acknowledged its treasury resources were not being deployed as efficiently as they could be and that improvements could be achieved in the automation, control and visibility of our processes. Consequently the decision was taken to review our treasury processes and the technology used to support them.

Our aim was to connect each task seamlessly (Straight Through Processing - STP) as well as automating the transaction workflow. ST decided to extend the degree of treasury centralisation by implementing an in-house bank model and replace our local banking solutions with a single connection to SWIFT. The most important element in achieving these ultimate targets was to select and implement a specialist TMS which would be used globally. ST’s decision process was driven by needs of the front office and risk management users since these two areas would have the benefit of the most immediate improvements.

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