Managing Global Treasury Technology
A case study on Prologis and In-House Banking (IHB)
Agenda
• Company Introductions
• Partnership Review
• Business Case
• In-House Bank (IHB) Review
• Implementation Considerations
• Project Review
• Benefits
• Q&A
About Prologis
• Prologis is the global leader in industrial logistics real estate
across the Americas, Europe and Asia
o We create value by developing and managing a world-class
portfolio of high-quality logistics and distribution facilities,
serving customers and investors as an integral part of the global
supply chain
• Key Stats: Operational HQ located in
o $66 billion in total assets under management Denver
o ~ 676 million square feet owned, managed, under development
o Operating portfolio of 3,322 industrial properties Europe Division located in
o Operations in 20 countries across the Americas, Europe and Asia Amsterdam
o Over 1,600 colleagues serving 5,200 customers worldwide
o Publicly traded REIT on the NYSE under the symbol “PLD” Corporate HQ located in
o Member of the S&P 500 San Francisco
o Among the top 100 most sustainable companies in the world
About Elire
• Elire is the industry leader in ERP Treasury workstation
installations
• 150+ Treasury workstation implementations since our founding in
2005
• Elire Partners include 20+ years in Finance & Treasury
• Elire Consultants average 7 to 12 years of experience
• We provide strategic guidance to assist with best practice core
business process improvement and we specialize in helping
unlock the potential of software investments
• Elire has been a SWIFT Ready Consulting Partner since 2007
• Key Consulting Practices
150+ Clients
o Treasury Advisory Strategic Services
o TMS RFP & Implementation Services
30+ Fortune 500 Clients
o Bank Services RFP & Selection
o Bank KPI Scorecard Assessments 30+ Financial Services Clients
o End User Adoption and Change Enablement
History of Partnership
• January 2007 - Elire and Prologis’ partnership was born in 2007, kicked off by an 8-week Proof of Concept project
2007
for global implementation of a treasury workstation.
• April 2007 – The Elire/Prologis partnership continued in 2007 when the Elire team was brought back on site to set
the foundation of Prologis’ treasury utilization by implementing PeopleSoft Cash Management v8.9. This was a
dual implementation with separate instances in Denver and Amsterdam.
2010
• July 2010 – Prologis re-engaged with Elire to complete a short-term Strategic Roadmap project, specific to its
growing Debt Management processes.
2012
• October 2012 – Building off the foundation of the work completed in 2007, Elire and Prologis once again partnered
for the implementation of PeopleSoft Cash Management for Prologis’ Asia region and Deal Management for
North America.
2015
• August 2015 – Elire and Prologis partnered on a Decision Point Analysis project to complete a review of current
state business processes, as well as execute a cost-benefit analysis of current state customizations, new PeopleSoft
9.2 features, and outstanding work requests in order to develop a scope and timeline for the 9.2 Upgrade that
Prologis leadership felt confident in pursuing
2016
• February 2016 – Following the success of the Decision Point Analysis Project, the Elire team engaged with Prologis
Leadership for the IHB Implementation & Current and Future State Business Process Documentation project,
2017
focused on its European region.
• March 2017 – Elire continues to support Prologis as part of their PeopleSoft 9.2 Financials Upgrade – focusing
Current State
Current set up
• One route for funding Asset Owning
Company (AOC) or sweeping cash balances
• Intercompany dividends paid once a year
• AR and AP at AOC level
• Limited Pay on Behalf (POBO)
Challenge #1
Complex Legal Structure and number of entities with no automated way to
track balances created lack of visibility
• Since the Intercompany loan is qualified and documented as a long term loan (with a long
term interest rate) it was considered a risk to continue with the setup as is. Lack of visibility
could have led to inappropriate cash movements
• Possible consequence could be the loss of long term loan status and therefore loss of tax
benefits (deductible interest)
Implementing In House Bank provided the needed visibility and prevented the
Solution cash sweeps from inadvertently reducing the long term loan balance
Challenge #2
Interest Rate
• The majority of the current Intercompany loans had an interest rate of 6%
• As loans renewed over time, the rate would be significantly lower based upon market
conditions (3%)
• This reduced the volume of interest to be paid and therefore the volume of cash to sweep
without impacting the IC loan principals
• Implementing In-House bank allowed us to see the correct percentages of
Solution interest vs dividend activity
• This is important for tax, legal, regulatory, and compliance
What was the solution?
• Change to Structure
o IHB operates at the same level as existing finance
companies
o New short term funding route in current account Top Holding
next to existing long term loans
o AR and AP remain at AOC level
Holding
o For Pay on Behalf (POBO), IHB takes over from
finance company.
In House Bank Finance Company
• Change to Business Process Holding
o Consolidate actual wire payments
o Utilize short term liquidity and free up trapped Asset Owning
cash Company
Why In-House Banking?
• Nominal Pool Structure
o IHBs are typically in USD, EUR, & GBP currencies; can be multiples
o Nominal netting of intercompany A/R & A/P is naturally achieved
o IHB nominal daily position reflects cash needs of pool participants
o FX trading for funding purposes is performed at IHB Pool level
o Non-deliverable functional (NDF) currency positions are still tracked
o Regulatory restrictions in some countries (i.e. Italy, Poland)
o Significantly reduces number of daily payments and related fees
• Physical Pool Structure
o Daily ZBA transfers for excess of participating cash (less reserves)
o IT Technology should support automated sweep transfers
o Some physical currency holdings must remain in-country
o Entities with NDF currencies will not participate in physical cash sweeps
to minimize local FX trades to deliver funds to IHB bank accounts
How Does In-House Bank Work?
• Nominal versus Physical Cash Flows
IHB03
NLD EUR
BU001 Internal Cash Flows BU002
External Cash Flows
Deutsche Bank NLD
(External Bank)
How Does In-House Bank Work?
• Example ERP Software Solution (PeopleSoft)
PS AR - IU • PS Manual IU Entries
IU Entries • PS Sub-Ledger IU Entries
PS General Ledge (I/
Bilateral Netting
CO Balances)
PS AR - IU
Optional
Delivered AE*
Optional IHB Interest
(TR_TRINTACU) IU Entries - Principal
IU Entries - Interest
PS AP –
POBO Entity
• PS CM – Bank Transfer (BAX)
PS AP POBO (Pay On PS In-House Bank
• PS DM – I/CO Term Loans
Behalf Of) (IHB01)
IU Entries • PS IU Transfers (Nominal)
PS AP – • PS IU Adjust (Nominal)
POBO Entity
Optional
BU Cash Flows
(+/-)
I/CO Cash Flows • Calc Daily Acct Balance
rd BU1 BU1 • Calc Daily Int Accural
3 Party Vendor Bolt-On Upload
Process* IHB Account IHB Account • IU Interest PS GL Entries
• Print Monthly BU Stmt
Why This Works?
• Net Benefits
o Intercompany loan balances can be kept
unchanged, better managed, interest settled
quarterly
o Cash can be made available for the entire
fund at all times
o Interest on long term loans and dividends can
be settled without loss of access to cash
o Settle intercompany transfers through current
accounts
o Reduced number of external FX trades and
intercompany transfers
o Less firefighting, more control at accounting
and cash management
Implementation Considerations
Policy Changes
• Corporate to revise internal agreements to allow sweep and zero-balance account (ZBA)
• New policy redefines minimum operating cash to allow cash sweep between BUs and IHBs
• Change Corporate investment policy required to invest in multiple currencies
Resource Requirements
• Regional Treasury Centers (RTC) satellite offices needed to sweep BU bank accounts to zero
• BUs and IHBs need to work in same time zone
• Need to define resources, system requirements, etc.
Bank Account Locations
• Implementing sweep globally will require changes to bank account locations
• Open accounts in strategic country locations with a global bank to resolve time zone issues
• Ideally Company and BU’s hold accounts in the same bank to minimize wire fees
Daylight Credit Arrangements
• Intra-day credit is recommended for BU’s bank accounts
• Negotiation with bank eased by opening regional BU accounts with Company’s main bank
Implementation Considerations
Sweep/Bank Account Architecture
• All cash above target balance is swept into the cash pool. Target balance will be defined for each
entity IHB position
• Entities with deliverable functional currencies but time zone issues should implement sweep
construct by changing bank account structure
• Entities with time zone issue or non-deliverable functional (NDF) currency will not sweep cash to
IHBs (i.e., South America, Middle East/Africa, Asia)
Multi-Lateral Netting Account Architecture
• ML Netting is best practice within an IHB pooling structure
• IHB nominal balances achieve a natural daily netting function
• Can occur at summary level or by individual transactions depending on IHB policy and system
technology capabilities
• BUs typically require review and pre-approval of their netting so a user online interface or reporting
process is needed
• ERP software provides a natural integration for intercompany A/R & A/P
Project Scope
• Strategic Advisory
o As part of the Strategic Advisory Services Analysis the following was
delivered
‒ Documentation of Current State Business Processes
‒ Creation of Future State Business processes
‒ Each business process map will include a detailed Attribute and
Disconnect Reports
• Implementation
o Automation of the In-House Banking process utilizing the PeopleSoft
Cash Management module
‒ Reporting Daily Balance Position Reporting
‒ Local currency for each Intercompany Relationship
‒ Calculation and record keeping of interest rates on Debit and Credit
balances
‒ Cash Positioning and Cash Sweeping Functionality
Project Considerations
Challenges to consider
o Resources spread across Regions Solutions
o Complexity of the In-House Bank o Open Communication channels
with clear procedures
o Multiple Business Groups involved
(Tax, Legal, Accounting, Cash Mgmt o Daily Check Ins
etc.) o Full Team engagement
o Changes in Design o Resources strategically placed
o Testing coverage and complexity with
supporting results
Net Benefit from Prologis IHB Project
• Direct access to cash
o Direct access to cash at all times should reduce the average
minimum cash requirement by 50%
• Reduced volume of IC transfers (settlement through current
account)
o Time and Effort to process transactions (estimated 10,000
payments per year) to be processed in batches
o Visibility allows for process simplification and automation
reducing workload for multiple teams involved (accounting
and cash management)
• Reduction of cross-currency transfers
o This can be solved partly with a better account structure
without IHB. However, not all entity structures prefer foreign
currency accounts at all levels nor is it always possible.
Thank You!
Ashley Bolton
Director Enterprise Solutions
[email protected]
Carola De Rosa
Director Accounting Project Management
[email protected]
Jason McCabe, CTP
Principal Consultant – Treasury
[email protected] Thank You!
