R3 Treasury SAP AG R SAP AG Overview

R/3 Treasury SAP AG R ã SAP AG

Overview of Treasury Functions Download MRM market data US$ DEM business partner TM / LO Derivatives Money Market Loans Securities Forex bank data Market Risk Management: • interest/currency exposure • mark-to-market valuation • risk analysis/simulation • value-at-risk Treasury/Loans Management • managing financial deals and positions • transfer to Financial Accounting • flexible reporting • datafeed interface Cash Management: • electronic banking • liquidity status • integrated operational systems • control functions CM Financial Accounting Logistics ã SAP AG R D 100 C D C 100

Treasury Process Information procurement Liquidity/ risk analysis and simulation Trading Back office Transfer to Financial Accounting Control and audit Information system SAP TREASURY TR-CM Cash Management TR-TM Treasury Management TR-MRM Market Risk Management R ã SAP AG

Industries Corporates Mortgage banks Insurance companies l Market Risk Management project l Money Market, Forex, Derivatives project l IS-IS/DARWIN project for Loans, Securities, Real Estate 1992 R/2: Cash Management Money Market, Forex, Loans ã SAP AG 1993 l Audit 1996 l R/3 Launch 1980 l Market release today 1994 R/3: Cash Management Money Market, Forex, Derivatives, Securities, Loans, Market Risk Management R

Countries Other English-speaking countries Germany, Austria, Switzerland l Market Risk Management project l Money Market, Forex, Derivatives project l IS-IS/DARWIN project for Loans, Securities, Real Estate 1992 R/2: Cash Management Money Market, Forex, Loans ã SAP AG 1993 l Audit 1996 l R/3 Launch 1980 l Market release today 1994 R/3: Cash Management Money Market, Forex, Derivatives, Securities, Loans, Market Risk Management R

Customers l Trade and industry n n Multinational corporations: w w Broad range of functions across the whole treasury area w w Covers special national features, such as electronic banking formats Various organizational structures, such as centralized/decentralized treasury Customers: Shell, Daimler Benz, Petrofina, Burda, . . . Medium-sized companies w w w All functions available, regardless of company size Uniform user interface simplifies training and usability The Treasury workstation concept allows scaled integration into the existing system environment using predefined interfaces R ã SAP AG

Customers l Providers of financial services n Insurance companies w w w n Management of securities, loans and real estate Integrated portfolio and risk management Customers: Munich Re, Schweizer Rente, Aachener Münchner, . . . Banks w w Treasury master data used by SAP Banking Treasury Management is used as a basis for managing loans given and loans taken by mortgage banks (customer project) R ã SAP AG

Main Targets of Treasury Priority Target 1) 1) % 1 To ensure liquidity 95 2 To optimize financing costs 92 3 To optimize yields on financial assets 74 4 To hedge costs (e. g. against possible exchange rate fluctuations) 61 5 To hedge sales (e. g. against possible exchange rate fluctuations) 52 6 To contribute to profit through active management of open positions 30 1) % of all companies surveyed Source: Price Waterhouse Top 500 Survey (Germany) ã SAP AG R

Liquidity Management Priority Target 1 To ensure liquidity % using SAP Cash Management TR-CM R ã SAP AG

Cash Management: Functions TR-CM Data transfer from operative systems: Financials, Logistics and Treasury Management Electronic banking functions Cash position: daily bank account balances by value date, payment advices Cash concentration: concentrated bank accounts Cash pooling: interest paid on bank accounts Liquidity forecast: expected inflows/outflows from customers and vendors, planned data Monitoring value dates, payment advices, conditions, checks cashed, . . . R Comprehensive analysis of liquidity situation ã SAP AG

Electronic Banking l Link to payment program l Manual/automatic account statements SWIFT MT 940 EU EU Multi. Cash USA Lockbox UK BACS n Various formats supported n Postings to G/L and customer/vendor accounts l Bank Polling F ETEBAC CODA BE FIDES CH CSB 43 E ZENGINKYO n Processes current bank information Bank postings JP Czech. Rep. Sweden Cash position and liquidity forecast Bank data Manual account statement ã SAP AG Area-specific processing 03/15 100 Banks Subledger 25 Subledger accounts R

Control Functions Aim: Monitoring bank account movements comparing value dates reconciling payment advice and account or bank statement cashed checks analysis account interest comparing bank conditions Monitoring correct payments processing for planning R ã SAP AG

Cash Position Grouping: Banks 09/01 09/02 09/03 ____________________ BANKA 90 130 60 BANKB 402030: Level: BANKA 09/01 09/02 09/03 _____________________ F 0 Subledger 40 80 20 B 2 Incoming checks 60 60 60 B 1 Outgoing checks 101020 - Accounts: Subledger 09/01 09/02 09/03 ______________________ Account 1 10 30 10 Account 2 20 70 20 Account 3 10 2050 Current bank account balances/balances per value date (bank postings, payment advices) Accounts managed in local/foreign currency Planning horizon 0 -5 days Documentation and audit functions Current liquidity position on bank accounts per specific date R ã SAP AG

Cash Concentration Status Bank 1 Bank 2 Bank 3 Bank 4 before concentration after concentration 1200 100 400 -350 5 5 1337 3 1350 Clearing proposal in accordance with selection criteria Interactive manual adjustment Credit transfers and correspondence Concentrated bank accounts R ã SAP AG

Liquidity Forecast Bank Payer of collection(E 1) (E 2) (E 5) cash discount (E 2) France(E 4) net amount (E 3) France. Payer (E 4) of Payer of net amount (E 3) Groups: - Customers with similar payment history - Customers of particular interest FI = Posting/Sales FW = Bill of exchange Levels: - Balances specified according to level XA = Blocking reason 'A' Integrated data basis including customers, vendors and planned items Expected cash inflows/outflows over a planning horizon of 1 -24 weeks Support for optimizing financial investment and borrowing Monitoring liquidity situation R ã SAP AG

Treasury Workstation R/2 FD RF . . . R/3 FI CM RFC R/3 Treasury Analysis Workstation CM MRM Liquidity Market risks TM Financial transactions Financial Accounting FI-ALE ã SAP AG FI CM TR-CM-ALE Trading Back office R/3 FI R FI-ALE

Corporate Group Evaluations Liquidity status Company codes 1 -4 External banks external financial transactions Central Treasury Company code 1 Company 2 Company code 2 Company 3 Company code 3 internal financial transactions Company 4 Company code 4 external financial transactions External bank 2 Liquidity status Company codes 2+3 ã SAP AG External bank 2 R

Implementation Strategies ad Fi itio n a na nc l a ia pp l. A r cc oac ou h nt wi in th g Tr Rationalization l automatic data transfer l reduced transaction costs Support for efficient liquidity management SAP AG : ics ion st ut gi trib Lo Dis th & wi ales ed S nt t / ie en or em s- ag es an oc s M Pr rial e at FI Advantage: ã M TR-CM MM SD Advantage: Integration l extended forecast horizon via link to the supply chain Support for efficient liquidity forecasting R

Rationalization: Electronic Banking Bank postings FI Tr ad Fi itio n a na nc l a ia pp l. A r cc oac ou h nt wi in th g TR-CM Advantage: Rationalization l l Bank data Areaspecific processing Cash position Automatic data transfer reduced transaction costs Support for efficient liquidity management ã SAP AG R Subledgers

Integration of Logistics Liquidity forecast l Delivery date and payment conditions l updated payment history Cash position Account statement ã SAP AG MM SD Advantage: Invoice Payment : ics ion st ut gi trib Lo Dis th & wi ales ed S nt t / ie en or em s- ag es an oc s M Pr erial Goods receipt TR-CM at Order Cash Management M Integration l Payment after arranged/forecast date l Value date based on bank statement Integration l extended forecast horizon via link to the supply chain Support for efficient liquidity forecasting R

Cash Position and Liquidity Forecast Cash Position Bank accounts in currency: Account 1 : Account n Total Payment transactions in transit: - incoming - outgoing Liquidity Forecast Financial investments and borrowings Subledgers: - A/R - A/P - Purchase orders - Orders R ã SAP AG

Cash Position and Liquidity Forecast Cash management decision Market information Cash Position Bank accounts in currency: Account 1 : Account n Total Payment transactions in transit: - incoming - outgoing TRADING Liquidity Forecast Financial investments and borrowings Subledgers: - A/R - A/P - Purchase orders - Orders R ã SAP AG

Cash Management Decision Cash management decision Market information Cash Position TRADING Liquidity Forecast G/L accounts TR-TM Customers/ vendors Orders FI Treasury FI MM/SD Financials Logistics R ã SAP AG

Integration with other SAP modules Cash management decision TR-TM Market information TR-CM Cash Position G/L accounts TR-TM Customers/ vendors Orders FI Treasury FI MM/SD FI SAP AG TR-TM Liquidity Forecast MM Logistics Financials ã TRADING TR-TM SD R

Treasury and Market Risk Management Priority Target % 1 To ensure liquidity 95 2 To optimize financing costs 92 3 To optimize yields on financial assets 74 4 To hedge costs (e. g. against possible exchange rate fluctuations) 61 5 To hedge sales (e. g. against possible exchange rate fluctuations) 52 6 To contribute to profit through active management of open positions 30 R ã SAP AG

Treasury and Market Risk Management Priority Target 1 To ensure liquidity 95 2 To optimize financing costs 92 3 To optimize yields on financial assets 74 4 To hedge costs (e. g. against possible exchange rate fluctuations) 61 5 To hedge sales (e. g. against possible exchange rate fluctuations) 52 6 To contribute to profit through active management of open positions 30 Implementation of SAP Treasury Management TR-TM TRMRM Market Risk Management R ã SAP AG

Treasury Management: Functions TR-TM Complete financial transaction and position management Support of trading and back office functions Functions to track, check and release transactions Data transfer to Financial Accounting (including accrual/deferral and valuation) Flexible settings to accommodate companyspecific transaction and position management processes Financial transactions assigned to portfolios or managed in securities accounts Flexible reporting and portfolio analysis Datafeed interface ã SAP AG R

Selection of Product Types Product types Hedging instruments Investment/Borrowing instruments Der Money market Fixed-term deposits Deposits at notice Commercial Paper Securities Loans Stocks Mortgage Subscript. rights loans Investment Borrower's certificates note loans Bonds Policy loans Convertible bonds Warrants Forex spot deals Forward exchange deals Foreign exchange swaps ivative instruments Cap / Floor FRA Swaps - Interest rate - Currency - Cross currency int. rate OTC options / futures - Currency barrier - Interest rate - Stock Swaption, IRG R ã SAP AG

Analysis and Trading Process Earnings/risk targets Controlling Targets Instruments Methods Measurements Information procurement Internal: - liquidity status - risk position External: - market data Assessment of possible solutions Identification of appropriate financial transactions Simulation of alternative results Decision Processing / Control Selection of an alternative Trading Back office Accounting Reporting R ã SAP AG

Transaction and Position Management Process Release Trading Create order/contract Exercise/expiration Give notice Rollovers Exercise rights Back office Settlement/Control Interest rate adjustment Netting References Confirmation letters Securities account transfers Corporate actions Accounting Postings Payment activities Reversals Accruals/deferrals Valuation User authorization Limit management R ã SAP AG

Trading Support l Company-specific organizational structures represented in the system, internal and external transactions l Uniform trading screen with aids for data entry and processing as well as fast entry templates l Trader and user authorizations for financial instruments and functions, change documents l Limit management l Standing instructions for specific business partners or organizational units allow bank details and payment details to be assigned to transactions automatically R ã SAP AG

Trading Support Partner data Business partner management Standing Instructions • Payment details • Correspondence • Derived flows optional: Order - Entry and editing functions standing instructions copying functions shortcuts and tree structures fast entry collective/fast processing - Automatic checks working days trader and business partner authorization ã SAP AG Market database Contract - Valuation tools NPV calculator option price calculator etc. - dealer slip - limit management - change documents R

Financial Transactions: Cash Flow Transaction Basis for Amount invested/ borrowed ACTUAL updating Cash Management updating Financial Accounting via flexible account determination Condition PLANNED triggering payment updating items Cash flow (example) Investment 4/1/YY 1 m Interest DEM made 7/1/YY 10, 000 DEM anticipated accrued/deferred interest payment initiation foreign currency valuation yield calculation R Repayment 7/1/YY 1 m ã SAP AG DEM anticipated

Financial Transaction Architecture Transfer flow Product type Valuation flow Transaction type Business partner History Posting information Calculation bases Flows describing structure characteristics rm Te nt me ay es t er SAP AG Int ã Re p er ad Tr ta he e l. s Conditions Ba Cu rre nc ies cc t General info Accrual/deferral flow Payment information R

Sequence Defined using Processing Categories Trading Back office with/without order optional: Contract Order l l Order expiration Termination l l l SAP AG Contract Exercise/expiration l Contract settlement Knock-in/knock-out l Exercise/expiration Termination settlement l Knock-in/knock-out settlement l Termination settlement Example: Derivatives ã with/without settlement R

Other Examples for Processing Categories with/without order Alternative without settlement Contract Trading Exercise/expiration with/without order Example: Currency option Back office Contract Alternative with settlement Contract settlement Knock-in settlement Exercise/expiration Exercise/ expiration settlement Example: Currency barrier option with knock-in R ã SAP AG

Financial Transactions in Cash Management: Display Levels Assign Cash Management levels 0001 SAP AG 51 A Fixed-term deposit TB Subledger time dep. 10 Contract Banks Le Description 10/02 10/03 10/04 10/05 later TB Time deposits 132, 323 xxx, xxx. . . . . OB Curr. option. . . xxx, xxx xxx, xxx DB Foreign exch. xxx, xxx xxx, xxx Balance xxx, xxx xxx, xxx . . R ã SAP AG . . .

Back Office Support l Check financial transactions upon settlement n Structure characteristics and allocation to portfolios/finance projects n Payment details l Collective processing and editing functions l Confirmation management / confirmation status n Outgoing confirmations, option of generating S. W. I. F. T. files and link to FX-Match via user exit n Enter and match incoming confirmations, evaluate overdue counterconfirmations l Monitor limit utilization as part of end-of-day processing l Netting of financial transactions (payment netting) R ã SAP AG

Back Office Processing Back office Correspondence • Confirmation management (incoming/outgoing) Confirmation Accounting Position management • Collective processing • Netting • References • Interest rate adjustments • Securities acct transfers • Corporate actions Processing transactions • Settlement/control • Payment details Curr. Bank . . . Acct . . . R ã SAP AG

Correspondence Confirmation Internal External Fax e. g. confirmation letter, SWIFT e. g. dealing slip R ã SAP AG

Transaction Settlement Account assignment reference DB 000001 Deutsche Bank Fixed-term deposit G/L account: 113113 Payment details Currency Payment details ID Payer/ee DEM 01 COUNTERP. USD 01 . . . DEM 02 Partner Pmnt bank ID meth. 2. . . T. . . Payment activity House bank Acct ID X BANKB GIRO BANKB USD . . R ã SAP AG

Business Partner - Payment Details Fixed-term deposit in DEM at COUNTERPARTY Forex purchase in USD Our house bank: Bank B Currency Payer/ee Partner bank ID Pmnt meth. Payment activity House bank Acct ID COUNTERPARTY 2 T X BANKB GIRO BANKB USD . . . Payment details ID DEM 01 USD 01 DEM 02 Allocations Money market Fixed-term dep. Deposit at notice Foreign exchange Forex. . . ã SAP AG . . Incoming 01 . . . Outgoing 01 R 01 01

Transfer to Financial Accounting l Posting release option l Flexible account determination at flow type level l Flows transferred to Financial Accounting l Direct posting to clearing accounts, clearing via account statement l Make payments using the extended payment program: n Generate and process payment requests n Payment netting, flexible settings for payment methods l Range of posting evaluations R ã SAP AG

Accounting Fixed-term deposit 1 month 3. 5% Sept 1 st Oct 1 st FI interface 1100 1120 + 1200 + Fixed-term deposit Final repayment Nominal interest 1, 000, 000 3, 750 Selection of transactions and flows relevant for posting Financial Accounting R ã SAP AG

Posting : Account Determination Fixed-term deposit 1 month 3. 5% Sept 1 st Oct 1 st 1100 1120 + 1200 + Fixed-term deposit Final repayment Nominal interest Acct assignment ref. DB 000001 1, 000, 000 3, 750 Balance sheet account acc. to account assignment reference Posting details Flow type Fxd-term dep. acct 113113 Deposit Final repayment ã SAP AG D 1, 000 1100 - Debit Bal. sht Credit Bank 1120 + Debit Bank Credit Bal. sht 1200 + Debit Bank Credit Int. earned Interest earned 273100 Bank clearing acct 113100 C 1, 000 D FT deposit Nominal int. Final repayment 3, 750 1, 000 C 1, 000 D Nominal interest C 3, 750 R

Posting using Clearing Accounts TR-CM TR-TM via activity at fixed-term deposit level fixed-term deposit TR-TM post flows to clearing account change to clearing accounts TR-CM clearing entry via account statement change to bank account level R ã SAP AG

Payment Transaction Handling. . . using clearing accounts Fixed-term dep. account (Deuba) SAP House bank account (Deuba) 100 m fixed-term deposit House bank DEUBA Bank clearing account 100 m Fixed-term deposit Account statement from bank R ã SAP AG

Posting using Payment Program Master record Payment control Current parameters Payment requests Documents Proposal run Proposal data set Edit proposal Payment run Print data set Print program Check Bank transfer Eurocheck ã SAP AG Payment advice Payment summary IDOC R

Payment Transaction Handling. . . using a clearing account for payment requests fixed-term deposit Fixed-term dep. account (Citi) 100 m 50 m 150 m Payment request clearing acct 150 m ã 100 m 50 m Citi payment order House bank DEUBA payment Bank clearing account 1 st fixed-term deposit 2 nd fixed-term deposit SAP AG SAP House bank account (Deuba) 150 m payment (trigger payment request run) account statement from bank R

Cross-Application Reporting Common reporting structure Data selection, definition of layout Individual reporting Journal Maturity list Revenue list R ã SAP AG

Multidimensional Flexible Reporting PARTNER Drilldown reporting structures X Company code X Partner Trader Transaction Product type X Currency Portfolio Account assignment Securities accountreference X Investm. /purchase CURRENCY PRODUCT TYPE Borrowing/sale PRODUCT TYPE CURRENCY PARTNER 3 PARTNER 2 PARTNER 1 Money market Forex Derivatives Securities Loans CURRENCY PRODUCT TYPE R ã SAP AG

Datafeed Architecture SAP Datafeed Provider R/3 Applications TR-TM TR-RM . . . Treasury Risk Management Operative SAP tables R e Market data q buffer u e s t Translation Information providers R e p l y External interface program table Reply Selective refresh ã SAP AG RFC Request Datafeed Server Log Datafeed server R

Risk Management Process in R/3 Risk controlling SD TR-TM MM TR-CM TR-TMMRM Information procurement • Internal: - risk position • External: -market data US$ DEM Datafeed ã TR-TMMRM SAP AG Analysis TR-TMMRM Assessment of possible solutions • Mark-to-market • Identify suitable • Sensitivities financial • Crash scenarios transactions • Simulate alternative results TR-TMMRM Eliminate risks Processing / Control Selection of an alternative • Trading • Back office • Accounting • Reporting • Value at risk R

Risk Management TR-TM l Market risk management l Selection of instruments l Authorization concept at user, business partner and trader level l Limit management (money market, forex) l Hedging strategies l Macro hedge l Portfolio hedge l Micro hedge (release not yet specified) R ã SAP AG TRMRM

TRMRM Mark Risk Management: Functions l Information procurement n Interest and currency exposure n Mark-to-market, effective interest n rate n Sensitivities, cash flow analyses n Value at risk l Assessment of possible solutions n Simulation n What-if analyses n Crash scenarios l Transform risk using Treasury Management Extensive risk valuation and control ã SAP AG R

Market Risk Management: System Overview Methods Market database Calculation Values (IRR, NPV, option premium, exposure. . . ) Buffer Reporting Cash flows Actual position Portfolio formation by selection (graphics, list, . . . ) Scenario database Fictitious transactions R ã SAP AG

Integrated Market Risk Management Data inflow Results Cash Management Control panel Actual transactions Integrates all incoming data and resulting data relevant for risk Exposure Hedging rate Mark-tomarket valuation Key ratios/ values Actual/scenario market data ã SAP AG Fictitious cash flow update R

Analysis and Simulation Market data: Prices Interest rates Volatilities Key values NPV IRR Effective rate Exposure Hedging rate Cash flows Key values based on simulated market data and simulated financial transactions Transactions: Forward transactions, options, swaps, caps/floors R ã SAP AG

TRMRM Evaluation methods Earnings/expenseoriented Risk-oriented l Internal rate of return (IRR) l Changes in net present value l Yield calculation (AIBD, Braess. Fangmeyer, Moosmüller, US Treasury) l FX and interest rate exposures l Effective rate (cut-off rate) for FX exposures l Mark-to-market valuation l Sensitivities (delta, gamma, duration, convexity) l Value at risk for portfolios R ã SAP AG

Macro Hedge l Hedging strategy based on values from Cash Management l No direct link between the hedging transaction and the hedged instrument Purch-: Forward Curr. : USD Key date 05/25/95 Rate 1. 5500 Amount 80 Foreign exchange n n n Hedging strategy Exposure analysis Instrument selection Cash forecast n n n ã Delivery date/pmnt conditions Payment history Update SAP AG C/F USD Cash Bal. 05/21 100 C/F USD Cash Fwd Bal. 05/21 100 80 20 R

Business Partner and Trader Authorization Trader and business partner Treasury Business partner authorization Trader authorization Authorization Money Market Fixed-term deposit 51 A 100 200 Fixed-term deposit investment borrowing Deposit at notice 51 B 100 200 Deposit at notice investment borrowing R ã SAP AG

Limit Management l Limit update based on the following characteristics (currently supported for money market and foreign exchange): n company code n trader n business partner n currency n portfolio n limit product group Limit utilization Trader: Fuchs Limit: Utilization. : 10 m Surplus/deficit 90 m l Example: L 1 : Partner L 2 : Partner / limit product group L 3 : Limit product group ã SAP AG 100 m L 3 700 Dres. FTD 400 900 FTD Deuba 500 1, 000 L 1 L 2 R L 1

Overview of Treasury Functions Download MRM market data US$ DEM business partner TM / LO Derivatives Money Market Loans Securities Forex bank data Market Risk Management: • interest/currency exposure • mark-to-market valuation • risk analysis/simulation • value-at-risk Treasury/Loans Management • managing financial deals and positions • transfer to Financial Accounting • flexible reporting • datafeed interface Cash Management: • electronic banking • liquidity status • integrated operational systems • control functions CM Financial Accounting Logistics ã SAP AG R D 100 C D C 100