Microsoft’s group treasury manager, Jayna Bundy, kicked off day two of the conference [see day one report here -Ed] by telling delegates in Singapore that the tech giant is moving towards becoming a devices and services provider, as well as a software vendor. Customers are also moving from onsite software towards cloud-delivered platforms and services. Treasury too is taking advantage of the cloud to improve operations.
Bundy said her treasury focuses on the five stages of the “life cycle of the dollar” and maximises value through:
- Cash planning and forecasting.
- Capital preservation to manage capital markets activities and foreign exchange (FX).
- Corporate finance to handle debt issuance for shareholders’ dividends or stock repurchases.
- Treasury operations for handling confirmation, trade sentiment collateral management, and settlement.
The Microsoft treasury also covers risk management these days, protecting the technology giant via the provision of business risk and insurance, and by effectively spreading the firm’s US$85bn portfolio of assets to maximize returns and minimize risk.
Treasury is very focused on how it can add value to the business. Business insight has gained increasing emphasis, Bundy said, as Microsoft goes beyond metrics and key performance indicators (KPIs) towards making data useful and using it intelligently. Innovation is another emphasis: one example is that Microsoft has a vision of “going green” by doing everything electronically.
A key goal of the recent projects undertaken by Microsoft’s treasury has been to increase cash visibility. Bundy said that at one point, the treasurer went to different teams within the treasury department and asked them to show how much cash Microsoft had. Every team had a different number. After that exercise, the teams got together to understand what cash means, use big data to get consolidated information and deliver a single amount. The teams devised a cash dashboard, which now provides senior leadership of the corporate with full details of a single cash position.
Adding to Profitability: Toyota Financial Services (TFS)
TFS America’s regional director, Paul Boodee, said that in recent years Toyota Financial Services has delivered over 50% of operating income for Toyota. While that percentage is likely to decline, TFS will continue to work on providing effective funding and adding value.
To enhance its performance, TFS has continued to improve products and diversify its funding structures. The mindset, Boodee said, is “change for the better” through continuous improvement and respect for people.
The Basel III capital adequacy regime has been a catalyst for change. To reduce counterparty structures, which added costs under Basel III, TFS built capabilities to automate exchange of daily collaterals and became one of the first corporates to use collateral to manage counterparty risk [see the gtnews Case Study on this 2012 award-winning entry to the gtnews Awards here -Ed]. The capabilities of the new technolgoy system has enabled TFS to slash derivatives exposure from over US$1bn to about US$56m and save tens of millions of dollars in interest expense annually, explained Boodee. TFS also developed technology solutions to model derivatives portfolios, make value changes and forecast FX. The resulting estimate of daily cash and collateral needs enabled the company to invest in longer maturities and increase annual returns by about $10m.
Another recent innovative solution has been to issue the company’s first Diversity & Inclusion Bond, a new type of bond syndication focused on Tier 2 and Tier 3 investors, which diversified the investor base and elevated the underwriters’ stature. Additionally, decentralising decision-making led to more empowered staff added value, with one example being the funding team increasing the number of capital markets deals from a dozen to nearly 300 per year, with an annual value add of over US$300m.
The net result, Boodee said, is that treasury has empowered associates, driven innovation, and become an invaluable partner with the business.
Changing the Game in Treasury Management
Omnicom’s finance director (FD) of treasury, Stephen Medhurst, and deputy treasurer Stewart Rodd provided insights to the audience at EuroFinance Asia 2013 about how the US advertising and marketing group has built its treasury into a far more strategic part of the business.
The Omnicom treasury operates from three locations and has six in-house banks. Medhurst said five tenets are essential to running treasury effectively: environment; culture; management philosophy; business operating principles; and support and structures.
An environment with common systems and processes globally enhances Omnicom’s ability to manage change and enables staff to work from anywhere. Its culture of empowerment, investment and recognition has enabled the firm to have a better working environment and a low staff turnover rate of about 10%.
The management philosophy is to put together teams of people to solve problems, rather like Navy Seal teams he somewhat optimistically said, with communications and cross-training as key parts of the practice. The operating principles centre on treating subsidiaries as clients, using automation and constantly trying new ideas. In addition, to ensure better support the treasury also uses practices such as having dedicated IT resources embedded within the treasury. The unit also challenges their banks to bring Omnicom their best ideas.
Building a Culture of Opportunity at the Award-winning Bharti Airtel
The general manager of Bharti Airtel India, Ashish Sardana, described how the telecoms firm, which won the Top Treasury Team Award at the EuroFinance Asia 2013 show, underwent a massive transformation when it embarked on a major expansion in 2010 after operating in India for more than a decade.
With the acquisition of 16 businesses in Africa, plus others in Bangladesh and Sri Lanka, Bharti Airtel went from a net cash position to managing the US$14bn in debt used to finance the acquisitions. It also went from operating in rupees (INR) and US dollars (USD) to managing exotic African currencies. After focusing on working capital management for a business throwing off cash, treasury shifted to managing debt, with the number of debt counterparties increasing from 10 to 70.
The corporation set up a centralised treasury and a framework to attack multiple priorities. The key step was to establish group treasury based on seven pillars: policies and governance; debt management; capital structure; ratings; risk management; working capital management; process controls and compliance. Everything treasury did needed to fit in one of these seven pillars. Under them it developed practices such as standardised policies across the group, enhanced debt maturities, listing a tower business through an initial public offering (IPO) and developing metrics like value at risk (VaR) to manage risk more actively.
While the change has been challenging, Sardana said the results have been positive. The pillars are the key development that gave the business a new, strategic way to manage.
Award-winning Financial Management at Larsen & Toubro
Larsen & Toubro vice president, Ramaswamy Govindan, who received the Top Treasurer in Asia award at the 2013 show, explained how he focuses on project advisory, bid strategies and business modeling as areas where finance can create value at India’s largest engineering & construction (E&C) company.
A key part of his role is to work with board committees on capital allocation, a risk management framework and diversification. His team supports bidding for projects of US$1-3bn, typically executed over five to seven years, meaning the company needs a long-term view to forecast currency, manage vendors and have financial policies. His group helps ensure proper capital management, project diversification and resource optimisation.
The key, Govindan said, is to have a framework and develop the capability to foresee events. He estimates that his group has added 1.5% to 2% to profitability, separate from return from treasury.
How Banking Relationships can Improve Liquidity and Working Capital
A panel composed of Stephen Hogan from logistics group DHL, Nirmal Khaderia from Bank of America Merrill Lynch (BofA Merrill), Thomas Schickler from HSBC, Saket Misra from RBS and Omnicom’s Stephen Medhurst gave superb insights into what corporates want from their banks during a panel session at the show, and whether banks are meeting treasury needs.
DHL’s Hogan said that with operations in 41 countries in Asia in locations ranging from capital cities to remote rural areas, DHL needs cash management solutions, collections and transaction support for all types of payments. The company has to use global banks as well as local ones to support regulatory and cash management requirements. Medhurst said that while Omnicom may be less demanding than DHL, they are driven by a relationship banking model and also need to find the best provider for cash management in each market.
Medhurst said one major challenge for Omnicom is that banks treat the firm as a separate account in each location, rather than providing coordinated, holistic support. “A lot of the banks aren’t joined up,” he said, and Omnicom even showed one bank that it hadn’t identified nearly 25% of the revenue it receives from Omnicom globally.
“It can be very frustrating.” Hogan concurred, adding that although it demands a clear communication channel, DHL has identified issues where subsidiaries are not implementing required solutions – perhaps because people focus on their local profit and loss (P&L). While DHL operates in countries as large as China and as small as Nepal ‘we expect the same level of service in all’.”
Responding BofA Merrill’s Khaderia said that although global banks won’t match the footprint of local banks, they can work with them and reduce the corporate’s direct dependency on local banks. RBS’ Misra concurred, saying global banks can minimize corporates’ interaction with local banks so that they don’t have to open and manage an account with every local bank. Schickler from HSBC said banks need to develop a structure organised around the company’s business model, at a global level.
There has also been a paradigm shift as global banks have had to change from just having a one-way flow into local markets towards supporting the clients of local banks as they expand outwards from Asia to compete globally.
Speakers in the concluding India Focus session at EuroFinance Asia 2013 discussed how the country is changing rapidly, and the opportunities change can create for corporates.
Panellist Rupa Balsekar, from BNP Paribas, said that regulations continue to be a major factor in India. To optimise their business, she said corporates should focus on five areas:
- Optimising the clearing cycle by using electronic banking services.
- Securing the benefits of centralisation and standardisation that outsourcing people-intensive functions like documentation for import transactions to banks can provide.
- Moving risk mitigation to banks.
- Increase the amount of attention paid to regulatory changes.
- Connectivity for the ‘last mile’, which can increase efficiency significantly.
Schneider Electric India’s head of treasury, Sumendra Jain, explained how they had outsourced payables management to BNP. After rapid expansion over a dozen years, the company ended up with a decentralised model and multiple enterprise resource planning (ERP) systems. Reconciliation was cumbersome, while working capital and cash management were challenging. Standardising account payables (A/P) management through BNP Paribas gave Schneider far better information and efficiency.
To illustrate how rapidly India is changing, National Payments Corporation of India (NPCI) chief executive (CEO), AP Hota, and HSBC head of global payments, Navin Gupta, provided examples of how the instant messaging and presence service (IMPS) mobile payment system and the national automated clearing house (ACH) system in India can transform corporate practices.
As one example, IMPS enables customers of launch clients, Reliance Asset Management, to now invest without going to a branch or a website. IMPS also enables customers to walk into a small store and pay. Telecoms’ and utilities’ customers can use NACH or IMPS to pay their bills, and with many of the 700m mobile subscribers in India currently paying by cash, a shift to the mobile channel will increase efficiency and reduce the costs of staff and real estate as the current payment collections units become smaller or disappear. For insurance, where getting payments in by a 2pm cut-off time is vital, because fund values change daily, customers can now use their mobile phone for payment instead of using an insurance agent.
- To see the day one report from EuroFinance Asia 2013 and the featured case studies please click on the highlighted sections.
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