Strategic Treasury

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Centralising Treasury at the Chalhoub Group An interview with members of the Chalhoub Group about the benefits of centralised treasury operations and in-house banks which led to choosing Kyriba as their TMS provider.

Centralising Treasury at the Chalhoub Group

 

Based on an interview with James Adams, Group Treasurer, and Shiban Patel, Treasury Analyst, Chalhoub Group

The benefits of centralised treasury operations – and of in-house banks – are today increasing interest to more and more successful corporations in the Middle East. 

Key Points

  • The successful expansion of the Chalhoub Group led the group to decide, about two years ago,  to create a centralised  group treasury department at corporate head office in Dubai.
  • This would take advantage of economies of scale in FX and cash management and provide improved visibility of cash.
  • The article offers suggestions and advice to other companies considering such a step, and summarises the benefits which the Chalhoub Group has achieved through treasury centralisation.

Building a group treasury 

About two years ago, the Dubai-based Chalhoub Group’s sustained business success and growth caused the CFO and CEO to decide to establish a group treasury department. The primary reasons for doing so were to take advantage of the economies of scale in the management of foreign exchange risk and of cash, and to improve the visibility and mobilisation of cash, in what was a typically decentralised corporate structure. 

At the time, the group had no centralised treasury function. The management team did not have clear, up-to-date visibility of the organisation’s overall cash balances, or of the group’s financial risk due to the rapid pace of growth. Some entities were running cash surpluses, whilst others were overdrawn. Accordingly, the senior management team decided to initiate a project to create a new central treasury operation, at the corporate head office in Dubai.

Chalhoub has taken the initiative by successfully creating a value-adding central treasury operation.

The internal resources for establishing a professional treasury operation from scratch were limited, so Chalhoub commissioned one of the Big Four consulting firms to carry out the necessary research and analysis.  The firm reviewed the ‘as is’ situation, and proposed a target operating model for treasury.  Chalhoub then built a team to establish the new department under these parameters.  A key feature of the model was the implementation of a modern Treasury Management System (TMS) to underpin operations, and to provide automated support for core activities, with the required security, control and transparency, and with high grade audit quality. 

The project team consisted of a cross-functional panel from the consulting firm and the Chalhoub Group. For the system selection and implementation processes, this also included Chalhoub IT and legal specialists. There was a full-time project manager to drive things forward, and senior management were actively involved in monitoring the direction and progress of the project, and to ensure that it was fully supported throughout the organisation. 

The target operating model identified four key business objectives for the new group treasury:

  • Centralised cash management
  • Centralised FX risk management
  • Establishing best practice governance
  • Achieving the operating benefits of automation 

The structure of the new department consists of seven professionals, including legal, IT and accounting. 

Technology investment

The team built the business case for the technology investment to secure a budget for the project. The business case needed to demonstrate a tangible return on the investment, as well as the intangible benefits of enhanced control and financial risk visibility. The business case was based on the benefits of the better use of cash through pooling and cash concentration, and of improved FX transaction pricing.

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