The company employs 35,500 people worldwide, with operations in 58 countries. It generated revenues of $18.9 billion in the year to July 2002, a quarter of which were produced by Cisco’s EMEA region. The company’s global headquarters are in San José, California.

How is the Cisco treasury structured?

The treasury works on a global basis, but is sited in four different locations. The headquarters are in San José, California. The other three locations are Reno Nevada, Dublin and Amsterdam.

We have five main tasks:

1. Cash management.

   The cash for Asia-Pacific, North and South America is managed out of San José. The cash for EMEA is managed primarily out of Amsterdam.

2. Investment.

   Working capital investment is run from San José. Reno invests the long term surplus cash flow for non- EMEA countries. EMEA surplus cash flows are managed out of Dublin.

3. Foreign exchange.

   All the foreign exchange requirements are executed from San José. In Europe, we are responsible for aggregating the requirements and then passing them to San José and then for all the subsequent back office and reporting requirements.

4. Corporate finance.

   All balance sheet restructuring and structured finance is run out of EMEA and San José.

5. Risk management.

   Operational risk issues and insurance are managed from San José.

For the first two tasks we operate virtual global teams to ensure that we are coordinating efficiently. The global investment and cash management teams both meet every second week in a teleconference, when we discuss our approach to common issues. On the foreign exchange side the interaction is almost daily. Corporate finance matters such as entity funding and capitalisation structures are handled on a regional basis.

With the exception of risk management, all the functions for EMEA report first to me. I then report to the treasurer, David Holland, in San José.

In terms of management structure, we have a set of initiatives to work from for each financial year. However a core part of the Cisco culture is the empowerment to local levels. This means that the top executives within the company are there to provide assistance to the local units, rather than to dictate. This model works for treasury as well.

What are your main responsibilities?

I am responsible for the management of our EMEA Treasury team which is split between two locations – Dublin and Amsterdam. We have three main roles in Dublin. Firstly, we run the investment of the surplus cash for the EMEA region. This is a vital activity as Cisco is a cash rich company. Dublin is an excellent location for our investment management activities. Secondly, we have a captive finance company, which provides finance to Cisco customers in order that they can purchase Cisco equipment. We provide the treasury function for that finance company, including all the day to day treasury responsibilities such as funding and the management of FX risk. Finally, we administer the EMEA inter-company loan book from Dublin.

The bulk of our Treasury “operations” activity is run from our Amsterdam centre. Cisco operates a highly centralised cash collection process there and Treasury needs thus to concentrate on the disbursement of cash to the local business units to meet their local payable needs. In addition, the cash flow forecasts, the foreign exchange risks, bank guarantee requirements and the bank documentation process are all managed from Amsterdam.

How do you manage your liquidity?

Cash management in Cisco is very important. Over the last year, our cash balances in EMEA have grown by about 300%. The key point is that the cash collection process is highly centralised with no in-country cash collection, resulting in a very large cash inflow to Amsterdam. The overwhelming majority (about 95%) of the cash is denominated in dollars. On the other hand, the accounts payable function is performed by the entities in country. Treasury in Amsterdam therefore has to disperse cash to local entities in over 40 countries so that they can make the payments to cover their operating costs.

Our model is to keep cash centrally and to disperse it to the regions on an as needs basis. This minimises the number of local accounts that are required and also the balances that are in these local accounts are kept to a minimum.

In an ideal world, we would have one cash management bank to cover the whole region. In practice, this is impossible because no bank has sufficient cover. We treat EMEA as three regions for this purpose:

• Western Europe where we use Bank of America.
• The Nordic region, where we use SEB.
• Central and Eastern Europe and the Middle East, where we use Citibank.

In addition, we do have to use local banks for some activities.

Amsterdam manages our working capital cash – in either bank deposits or money market funds. The surplus is sent to our investment team in Dublin via our custodian, State Street. We outsource the management of about 60-70% of our portfolio to leading investment management firms. Cisco is not an investment firm thus investments are not a core competency, hence our reason for outsourcing to those that are experts in this field. At present we have three outsourced investment management contracts and we are in the process of adding a further two. The remainder of the portfolio is managed by our internal portfolio managers. This combination allows us to keep our understanding of the market and also to benchmark both our outsource providers and our internal managers. In addition, when we do need short term cash, we can tap the resources in the internal portfolio very easily. We also outsource the back office of our investment operations to State Street as again this is not a core internal competency. From Dublin, we invest in a full range of instruments. We have a small investment in money market funds, a large portfolio of CP, FRNs, fixed income bonds and asset backed securities. All investments are in US dollars -and our credit rating minimum is A1/P1 for short-term and the A2/ A for long-term.

Turning to technology, do you use a treasury management system?

No. We believe that we have what we need as a result of developing functionality in-house. Therefore we do not need to divert resources towards buying and installing a complex and expensive treasury management system. In addition to the tools that we have developed in house, we also leverage some information from the company’s Oracle ERP system into the treasury.

Given Cisco’s pivotal role in the Internet, how does the Cisco treasury use it?

Cisco as a company is at the very forefront of developments in the Internet. We have an underlying belief that the Internet has changed and will continue to change the way that business is done.

Within the Cisco treasury, we see that we can act as a role model for treasuries in other businesses on how to use the Internet. We are always looking at how we can leverage the functionality of the Internet to improve productivity and efficiency. There is a strong focus on the development of technology projects within the company. Within Cisco, we are strongly encouraged to put forward, justify and plan for the implementation of new technology projects. Within treasury, we are looking for ways in which we can avoid manual inputs and duplication and to provide better information. ETreasury as a theme is a core focus and our aim is to be the ultimate eTreasury in our use of technology and the web.

From our banking partners, we are looking to see how well they can interact with us using the internet, how well they can straight through process and how they can exchange data.

Can you give an illustration on what you mean?

We referred earlier to the fact that local entities received cash from Amsterdam to fund their operating costs.

In the past, each local entity would have forecasted its cash needs on a spreadsheet one month ahead. This spreadsheet, and similar ones from 40 other entities, would have been sent to the central treasury in Amsterdam for aggregation. This whole process, including a ‘reality check’, would take the analyst about a day and a half. The aggregated EMEA spreadsheet would then have to be sent to San Jose to be combined with the information determined there – a further half a day’s work by another analyst. These trades would be executed after calls to banks. Amsterdam would then settle these trades and the accountants would reconcile them with the ERP system. On a typical month, this process would take between four and five days work. Not only was this wasteful, it was also subject to a high degree of risk as there were a number of points at which manual entries or re-keying was required. As a result, we wanted to try to automate this process.

The basis of the system is a software package, Orbit, which we purchased and have customised to our requirements. When the finance people in the business units want to submit their cash flow forecasts, they now go onto the web. When they do, they see a preformatted template, including their last forecast which acts as a term of reference. Each entity’s forecast is then submitted to Amsterdam, where it is aggregated. The analyst in Amsterdam then performs a sanity check on the figures, before sending the information to San José for execution. In San José, the template submitted from Amsterdam is amalgamated with templates submitted from elsewhere. The tailored Orbit system then translates the FX requirements into the necessary trade tickets.

The Orbit system is linked to FXall. We have previously nominated the banks with which we will trade; up to three are selected for each trade through FXall. The trade is then settled and confirmed through FXall, after which an FX settlement report is sent to Amsterdam and San José.

Currently, this data can then be uploaded into the desk-top based electronic banking system. In EMEA we are using a web based electronic banking system and this does not yet have the required file upload capability. We are pushing hard on our bank to deliver this capability and hope to be able to upload data from FXall into the banking system by the end of the year.

Our objective is to automate the whole process from the entity keying in its needs through to the cash receipt. To date we have reduced the human input from four to five days a month to about half a day’s work. This represents a clear increase in productivity. The introduction of automation and straight through processing significantly reduces the chances of error.

There are other benefits too. This automation means that all foreign exchange deals will be reported via the web to me. It also makes the monitoring of the funding process much easier. This development has not been easy. It has taken us about two years of development to get us to the stage that we are now.

In what other ways do you use the Internet?

We have developed a number of other tools, including:

1. A bank signatory tool.

   The tool includes a database of our bank accounts worldwide and a virtual approval process for the addition of new signatories. In addition the tool generates documentation acceptable to our banks worldwide.

2. A wire transfer request tool.

   This allows us to route nonregular payments through an electronic approval process. When a payment needs to be authorised, the authoriser receives a message by email. By clicking an icon, the authoriser can view any relevant supporting documentation before authorising the payment (or not) electronically.

3. Investment.

   We can trade off the Bloomberg portfolio trading system and this allows us to route the trades directly through to State Street electronically.

We can control what goes on in our own environment, but we sometimes run into the problems once we have to interact with certain outside providers, most particularly with the banking world. For example, our web-based FX tool runs into problems once we need to get the payments into the payments system. The banks generally dictate the format that they wish to receive payments and it takes time to get them to adapt their systems to take files from other source systems. We spend much time working with our banking partners to drive such matters forward.

What help do you need from your banks?

We would like the banks to talk more to their corporate customers. Many companies are more than happy to help their banking partners to develop their offerings. The pace of change in the banking industry is much slower than we would like. Some of the banks have focussed their ecommerce offerings on the wrong areas and are not focussing on delivering to meet the needs of their customers. I would suggest it would be beneficial to the banking institutions to run customer focus groups to permit the banks to what developments the corporate customers would like to see. We want developments that will increase efficiency like, for example, account opening documentation. We could to be more involved on the strategic level and in return we, at Cisco, would be early adopters of new developments.

Is there a gap between the talk about e-treasury and reality?

There’s no doubt that e-treasury captures the imagination. We are always looking for ways to deploy internet technologies to enhance our productivity. This has been highly successful and we continue to achieve excellent productivity gains. As a result, we have been able to handle an increased volume of treasury activity without additional staffing. At Cisco, we firmly believe that the internet is changing the way we work, live, play and learn. Our aim is to build the ultimate etreasury organisation and to have fun doing it!!