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ADVANCED FINANCIAL DIAGNOSTICS for legal practitioners & their clients Dr Richard Allan Financial Management for Australian businesses
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Page 1: AFD Advanced Techniques in Interactive Finance 10p 020715

Dr Richard Allan

Applied Financial Diagnostics

0412 699 992www.findiag.com.au

for Australian businesses

Page 2: AFD Advanced Techniques in Interactive Finance 10p 020715

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APPLIED FINANCIAL DIAGNOSTICSInteractive Finance

OBJECTIVE

To enhance the value of enterprises by utilising commercial, contract and financial

methods to increase their income, reduce their cost of capital, equipment and

financing and to identify opportunities to minimise fees & margins.

An enterprise can

manage or engineer returns any time any pattern any currency any tax regime

using any instrument any contract any market

and move seamlessly between P&L Account Balance Sheet Off-Balance Sheet

in order to maximise its global value

AREAS FOR ADDING VALUE

Organisations from start-ups through listed companies, multinationals, charities and

government and their advisors, from agents & lawyers to administrators &

receivers.

Level 1: Board

Level 2: Strategic: Most commercial contracts – e.g. Capital raising, Project

Financing

Procurement, Marketing,

Investments, Remuneration, Tax

Page 3: AFD Advanced Techniques in Interactive Finance 10p 020715

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Level 3: Operational: Most financial transactions – e.g. Hedging, Liquidity

management

APPLIED FINANCIAL DIAGNOSTICS

Interactive Finance

Contracts & commercial pricing

financial , commercial & capital markets

sales & exports, procurement & purchases

evaluations, treasury, liquidity

treasury services

Financial cost minimisation

Expert Reports Foreign markets

diagnostics

global enterprise value

Contracts strategy Financial

diagnostics Identifying &

pricing embedded options

benchmarking

contract price diagnostics

Capital markets contracts

Foreign exchange Equipment contract Project Finance

Con-tract price Strategy

Capital Markets

EFM analyt-

ics

Treasury services

Enterprise financial management

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APPLIED FINANCIAL DIAGNOSTICS

Interactive Finance

THE FIVE STAGE PROCESS

Enterprise Financial Management model

Board mandates: Functional currency, key objectives, core strategies, risk tolerances, enterprise drivers.

Identifying exposures, Internal offsets, real & embedded options, commercial adjustments, contract evaluations and risk diagnostics.

Actual exposures & sensitivities

Contract/ commercial solutions & strategies, financial alternatives, tolerances, contingencies, opportunities.

Determining contractual, commercial and financial pricing. Proactive establishment of key tiggers, windows of opportunity and limits.

Capital Investment & equity markets, currency & money markets, financial & commercial engineering, triggers, monitors, tollgates & controls.

BOARD

Exposure Identification

Strategies

Tactics

Implementation

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APPLIED FINANCIAL DIAGNOSTICS PTY LTD

Interactive Finance

THE VALUE PIPELINE

To increase business profitability by ensuring contract terms & conditions, especially

regarding pricing and global financial issues, are properly identified and managed

VALUE ADDED

Once strategies are set, most value is added by executive management at

the contract stage.

COSTS & BENEFITS

Strategies Contracts Treasury

Strategies: Considerable value but possibility of positive and negative outcomes

Contracts: Only upside: either no change or range of value enhancements

Potential value added

Contracts TreasuryStrategies

Downside

Benefits

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Treasury: Only upside: either no change or cost savings

APPLIED FINANCIAL DIAGNOSTICS Interactive Finance

THE VALUE PIPELINE

TWO METHODS FOR FINANCIAL MANAGEMENT: FINANCIAL AND LEGAL

Financial markets & instruments: Including embedded options requiring legal

assistance

Commercial contracts: Virtually all financial contracts can be replicated through

commercial contracts – one will always be superior from the client’s perspective.

Including embedded options requiring legal assistance

Our job is to ‘translate’ their language into yours – and the value differential drops out.

This adds transparency – the value proposition becomes crystal-clear.

Two values Enterprise Financial org. Benchmark

Two markets Commercial Financial One is superior

Two prices Present Future Timings

Two products Contract Instrument “Engineering”

Two economies Australia Offshore Inequalities

Two axis Enterprise Financial Long term value

Bottom line: It is usual to add

greater value during

commercial phase

FINANCIAL & COMMERCIAL ENGINEERING:Virtually all financial contracts can be replicated through commercial contracts

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APPLIED FINANCIAL DIAGNOSTICSInteractive Finance

IDENTIFYING INITIAL POSITION – AND OFFSETS

A seven year overview of the underlying global price movements

EXAMPLE: SOME OPTIONS FOR IMPORTER’S GOALS

Four variations of the risk/return trade-off for importers: Revenue and

currency scenarios

Using either contractual or financial market instruments, actual or

embedded

Pre-con-tract

Post-con-tract

DealingJa

n-0

7

Jan-0

8

Dec-

08

Dec-

09

Dec-

10

Dec-

11

Dec-

12

0.6

0.7

0.8

0.9

1

1.1-10%-5%0%5%10%15%20%25%30%35%40%

7 year chart of Australian US Dollar

AUD/USD

GOOD Importer BAD Ex-porter

BAD Im-porter GOOD exporter

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APPLIED FINANCIAL DIAGNOSTICS PTY LTD

Interactive Finance

VIRTUAL TREASURY

PRICING AND DIAGNOSTIC TOOLS & APPLICATIONS

Pricing tools and Diagnostics will be provided – some arithmetic skills are necessary

but no applications of formula or mathematics.

The course is designed for executives with legal skills to assist them to

apply finance and use “parafinancial” techniques to avoid danger & re-inforce

opportunities

Interactive Finance methodology includes a Virtual Treasury GPS

0.8000 0.8500 0.9000 0.9500 1.0000 1.0500 1.1000 90

95

100

105

110

115

120

125

130

Unhedged100% CoverFloorCollar

AUD/USD rate in 12 months time

Reve

nue

AUD

m

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The Chines calligraphy for CRISIS: Danger + Opportunity

GUIDE DOGS, NOT GUARD DOGS

EFM strategy is designed to assist in increasing Enterprises’ margins and profitability

by identifying international pricing opportunities and reducing the costs of financing

capital equipment and financing (levels, fees, margins and costs).

APPLIED FINANCIAL DIAGNOSTICSInteractive Finance

VIRTUAL TREASURY©

Treasury Director is one of the tools we use within the Virtual Treasury to apply Interactive Finance

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Page 11: AFD Advanced Techniques in Interactive Finance 10p 020715

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TWO METHODS FOR FINANCIAL MANAGEMENT: FINANCIAL AND LEGAL

Financial markets & instruments: Including embedded options requiring legal

assistance

Commercial contracts: Virtually all financial contracts can be replicated through

commercial contracts – one will always be superior from the client’s perspective.

Including embedded options requiring legal assistance

Our job is to ‘translate’ their language into yours – and the value differential drops out.

This adds transparency – the value proposition becomes crystal-clear.

Two values Enterprise/Client

Financial org. Benchmark

Two markets Commercial Financial Replication:One is superior

Two prices Present Future (NPV) NPVTime value

Two products Contract Financial instruments “Engineering”

Two markets Australia Global Volatility Inequalities

Business targets

Outright value Financial margins Long term value

Bottom line: It is usual to add

greater value during the

contract phase

Dr Richard AllanApplied Financial Diagnostics

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0412 699 992www.findiag.com.au