2011 Corporate Awards for Innovation & Excellence

by Helen Sanders, Editor

In the last edition of TMI, we announced the 2011 Awards for Innovation and Excellence for banks, consultancies, technology companies and other treasury providers. In this edition, we are delighted to announce the 2011 Corporate Awards. This is the fourth consecutive year for these awards, which are now firmly established as prestigious awards that recognise corporate treasury professionals and departments that have contributed significant value to their organisations. This year sees awards in five categories, each of which illustrates what can be achieved by finding innovative ways of addressing universal business challenges. At times, such projects take many months to accomplish, such as Alitalia’s financial process optimisation project; in others, a relatively small project can deliver substantial benefits, as in DFS Group’s case.

Each of these awards has been presented based on articles that have appeared in TMI during the course of 2011. The following sections summarise each article, but we invite you to consult the full articles that are available elsewhere on this website. For your convenience, we have created a link to each article in the relevant section.

Lindsay Cornelissen, Managing Director Corporate Clients, London, ING, presenting the ‘Treasury Team of the Year’ award to Marco Tierno (Head of Group Treasury & S/T Financial Planning) and Raffaelle Parrella (Head of Credit Cards) of Alitalia.	Oliver Harrison of Citi accepting the DFS Group award on behalf of Hong Kong-based Kenneth Ng.
George Zinn, Corporate Treasurer & Jose Luis Marti, UK Credit Risk Manager, with the Microsoft award.	Laurent Hendrickx, European Treasurer & Christian Storck, Treasury Management Supervisor accepting the Guardian Industries award.
Lindsay Cornelissen & Helen Sanders, TMI Editor, presenting the Honeywell award to Séverine Le Blévennec (centre), Director Treasury, Europe, Middle-East and Africa.	Lindsay Cornelissen & Martin Kraaijeveld, Consultant PCM, London, ING, presenting the Special Editor’s Award to François Masquelier, Senior Vice President, Head of Treasury & Corporate Finance, RTL Group.

[[[PAGE]]]

‘A Collaborative Approach to Optimising Cash Investment’ (click to access)

November 2011, Edition 200

Séverine Le Blévennec, Director Treasury, Europe, Middle-East and Africa, Honeywell

Like most large multinational corporations, Séverine explained that Honeywell’s cash investment priorities are security and liquidity, with yield a third priority. With around €2.1bn in cash to manage in Europe, it can be difficult to find appropriate repositories for cash that meet the company’s stringent credit and liquidity requirements. Historically, Honeywell has been prevented from using money market funds (MMFs) as it had Belgian co-ordination centre status. However, since the expiry of this status, the company has been able to invest in these instruments, focusing on the AAA-rated IMMFA funds.

In addition to selecting the right cash investment instruments, process efficiency and control is an essential requirement for Honeywell. The company already had a sophisticated treasury management system infrastructure in place, and wanted to leverage an automated tool for transacting in MMFs, whilst also being able to compare MMFs easily. Séverine and her team reviewed MMF portals and opted for MyTreasury.

The decision to use MMFs, and to leverage the MyTreasury portal has proved very successful for Honeywell. Since introducing MyTreasury in 2009, it has now been rolled out to UK for GBP funds, Asia Pacific for funds in Singapore, Malaysia, Mauritius, Australia and most recently China. It is also now being introduced to the United States. It can often be difficult to quantify the financial outcome of introducing a new technology tool, but Séverine explained that as rebates are recorded in MyTreasury, treasury can compare fund returns accurately. The ability to negotiate fees based on a global view of investment has been highly beneficial, resulting in rebates amounting to $800,000 each year so far, and growing.

‘Treasury as Value Creator in a Decentralised Company’ (click to access)

May 2011. Edition 195

Laurent Hendrickx, European Treasurer, Guardian Industries Corporation

Laurent introduces his article by emphasising that managing treasury in a decentralised business environment is an entirely different proposition to a business where management responsibility and business support functions are concentrated at regional or global level. It is easy to assume that a centralised environment is ‘right’ and conversely, a decentralised business, ‘wrong’ as there are typically other commercial pressures on the business that demand a particular business model.

Laurent outlines how the requirements for treasury in a decentralised organisation are the same as those of a centralised business: cash management, FX, interest rate risk management, financing, investment etc. However, the number of customers or internal stakeholders is far higher, with obligations to each individual plant or operating entity. This means that treasury has to assume the role of value creator, and deliver clear advantages to individual business units as well as at a group level. For example, by demonstrating clear economies of scale by centralising technology and processes, whilst maintaining local financial management, he and his team have achieved a high degree of efficiency in areas such as accounts payable and receivable. Treasury is also responsible for managing bank relationships, and operates as an in-house bank, supporting the needs of a decentralised business whilst representing the group externally in a cohesive fashion.

The benefits of Guardian Industries’ approach have been substantial. Local management gain the advantage of economies of scale and receive value-added services and reporting without the need to maintain local banking relationships and technology. At a group level, Laurent and his team are realising working capital improvements, enhancing the quality and frequency of reporting, and ultimately contributing positively to the P&L.

Consequently, so long as treasury continues to deliver tangible value to the business, it typically gains considerable support from business unit management. To achieve this, treasury invests significant time in the initial engagement process with business units to help them to understand how a proposed solution will benefit them, and gain their support. Having done this, however, there is often significant momentum to realise a project. For example, the company migrated to SEPA payments in Spain and Portugal in February 2010; while some companies have implemented SEPA payments in countries such as Belgium, it is far less common in these countries.

From a treasurer’s point of view, it becomes important to put oneself in the shoes of the local business managers, who typically do not have a financial background, and adapt the way that treasury communicates complex concepts and terminology. Having created trust and credibility, the partnership between treasury and a business unit can be transformational, and deliver significant value to the enterprise.[[[PAGE]]]

‘Achieving the Next Level in Streamlined Connectivity’ (click to access)

SWIFT Connectivity Guide for Corporate Treasurers, 2011

A Bank of America Merrill Lynch Case Study

Microsoft was a trailblazer for SWIFT Corporate Access during the early years, and has continued its pioneering approach by being the first corporate globally to adopt version 2 of ISO XML 20022 standard. The initial objective was to migrate to version 2 for bank statement reporting, but this has subsequently been expanded to include payments. Not only has Microsoft achieved considerable quantitative and qualitative results, but the company is once more setting a precedent for other corporations seeking to manage their bank risk, achieve greater visibility and control over cash, and reduce the cost and complexity of bank connectivity.

The credit crisis and an enhanced recognition of geo-political risk illustrated that no longer was it sufficient simply to have visibility over cash, Microsoft needed to be able to transfer money between banks quickly, manage counterparty risk more effectively and achieve greater efficiency in financial processing. Microsoft recognised that relying on proprietary bank technology was an impediment to these efforts. Furthermore, treasury needed enhanced data that would permit automatic payables and receivables reconciliation, auto-clearing and auto-posting.

Microsoft identified ISO 20022 Cash Management v2 messages as the right format to achieve these objectives by delivering the quality and granularity of data that treasury required, even though this had not yet been implemented in other corporations. The results have been substantial. Overall, Microsoft has calculated a return on investment (ROI) of 44x over a three year period, including $1m p/a in IT cost savings, an increase on investment returns of $5m p/a and headcount savings of $600K p/a. In addition to the quantitative benefits, there are a series of qualitative benefits such as identification and remedy of errors more quickly, enhanced processes and improved cash forecasting and FX risk management.

This project illustrates that proprietary bank technology and integration formats are no longer a strategic differentiator for banks when engaging with their large, multibanked customers. Instead, communication is becoming largely commoditised, with the value derived from the content that is exchanged, and how this can be integrated into core processes. Collaboration, both internally and externally, has been key to success with a common vision of uniformity, integration and the streamlined exchange of data.

'Treasury Transformation to Minimise FX Risk' (click to access)

July/August 2011. Edition 197

Kenneth C.K. Ng, Group Treasurer, DFS Group and Stephen Chan, Head of Liquidity Management, Asia Pacific, Global Transaction Services, Citi

With retail operations across Asia and beyond, DFS has cash inflows in a wide range of currencies, while most purchasing takes place in USD. In the past, DFS managed its FX risk by sending funds in local currency to group treasury in Hong Kong, which treasury then converted into USD. In the event that purchases needed to be made in other currencies, USD were sold and the relevant currency purchased as required. Consequently, DFS was experiencing high bank charges with a large number of cross-border cash transfers and the cost of buying and selling USD. Furthermore, there was a great deal of manual work required by local divisions and treasury to administer the process, and tight deadlines.

DFS approached Citi to discuss ways of enhancing the way that cash and foreign exchange risk is managed, in order to make the process more convenient without adding to risk or cost. The result is a two-way cross-currency, cross-border sweeping arrangement with automatic conversion into USD. Surplus funds in DFS’ accounts across the region, in all currencies, are automatically swept into a central USD account with the conversion performed at an agreed margin. Similarly, overdraft balances in each currency account are funded automatically from the USD account at the end of each day to avoid overdraft charges.

The new solution represents a complete transformation in the way that cash and FX risk is managed at DFS, and was implemented within a month without the need to dedicate significant internal resources. As a result, local business divisions no longer need to transfer surplus cash to treasury, nor to request additional funds. Similarly, treasury do not need to exchange foreign currency amounts for USD, nor to convert amounts back to local currency. The workload across the business has therefore been substantially reduced, whilst retaining visibility and control over cash flows and FX processes. Based on DFS’ initial calculations, first year cost savings will amount to $300,000-500,000 in external costs alone, in addition to substantial internal efficiencies and cost reductions.[[[PAGE]]]

‘Soaring to New Treasury Heights’

November 2011. Edition 200

Marco Tierno, Head of Group Treasury & Short Term Financial Planning, Alitalia Compagnia Aerea Italiana

Since the new Alitalia business was launched in 2009, the management team, combining both existing and new senior executives, has focused on repositioning strategy and modernising processes, creating synergies and efficiencies and streamlining the organisational structure. While treasury had already made progress towards transformation and modernisation by this time, the reorganisation acted as a catalyst for delivering a highly efficient, centralised treasury structure.

Treasury had been experiencing a wide range of challenges, derived primarily from fragmentation of the treasury operation and a lack of automation. For example, the Group had several separate treasury functions and foreign subsidiaries managed their cash and treasury management requirements independently, preventing cash surpluses from being netted against deficits in other parts of the business and without reference to central treasury policies. There was no central treasury management system, leading to a loss of control over data and irregular, manual processes such as reconciliation, payments and approvals.

Having benchmarked its treasury activities against other airlines, Alitalia recognised that there was scope for improvement in its performance ratios to preserve margins and enhance its competitive advantage. Consequently, treasury launched a financial process optimisation (FPO) project to rationalise and centralise the treasury organisation, streamline processes, create a robust technology infrastructure and enhance reporting. The aim was to create value through operational and financial efficiency, which affected every aspect of treasury, including strategy and policy, processes, technology and staffing.

Treasury initially focused on the tasks that would have the biggest initial impact, such as concentrating cash flows, enhancing and centralising card acquiring services and establishing a new standard for reporting. To achieve this, Alitalia needed to rationalise its banking relationships. With 40 branches and 19 subsidiaries within the Alitalia Group, most of which worked with a local bank, there were multiple bank relationships that were impossible for treasury to manage, and both cash and information were highly fragmented. Within four months of the corporate restructuring, Group Treasury had appointed a streamlined group of banks, with improved service, lower costs and greater visibility over cash. Before embarking on the FPO project, nearly 70% of financial flows took place at a local level, with treasury managing barely more than 30%. Today, treasury has control of around 90% of the Group’s financial flows (in terms of volume).

The FPO project required not only a new approach to processes, technology and decision-making, but also the skills that we maintained within the treasury department. Of the original team, three senior treasury professionals were retained, and graduates were employed with great flexibility and team-working capabilities. While they initially lacked treasury experience, they quickly built up the skills and expertise that we needed. Throughout the FPO initiative, it was very valuable to leverage new ideas and new ways of doing things. With new personnel, it was possible to establish a fresh and re-energised treasury culture.

The FPO project has resulted in both operational and strategic benefits. By concentrating cash and centralising the treasury function, we now have far greater control over cash, and our cash flow forecasting process has more integrity. Cash and risk information on which decisions are made are more reliable and timely and transaction processing is more efficient, with greater integration between internal and external systems. By concentrating cash and managing intercompany flows more effectively, we reduce the need for external borrowing, and can leverage investment opportunities. We now have fewer banking partners, but these relationships are stronger and deliver greater benefits, with the potential to create economies of scale. These activities are all managed by a highly professional, focused treasury team, with a focus on constant business improvement.

Treasury at Alitalia has changed unrecognisably over a relatively short period of time. We have moved from decentralised culture with general treasury resourcing to a centralised panel of treasury specialists. This has benefited the business immeasurably, with greater integrity and visibility over data, a better ability to define and deliver on a competitive treasury strategy and position the business for future growth.[[[PAGE]]]

We are privileged to feature regular content by François Masquelier in TMI, and once again, it is a pleasure to recognise the contribution he makes through our Special Recognition Award. Between February and June 2011, we featured four articles by François:

In February 2011, ‘Ten Years of IAS 39: What Next?’ shares opinions from various expert commentators about the legacy of IAS 39 and what the transition to IFRS could bring. François picks up the same theme again in the following edition (March 2011, edition 193) which discusses IFRS 9 key measures in more detail.

In April 2011 (edition 194) François focuses on the importance of internal controls in treasury. While this is a topic that emerges in many treasury-related articles, Francois explains that the concept of ‘internal control’ is not consistently understood or applied, and provides a structured approach to outlining and delivering on control objectives.

In June 2011 (edition 196) François’ article entitled ‘Modernising the Finance Department’s Role’ outlines that while risk management, liquidity and financial efficiency an essential element of every CFO’s role, the way in which they fulfil these obligations are changing constantly. He describes how the CFO and CEO’s roles have become more closely aligned; similarly, the treasurer’s role has become a more important aspect of the CFO’s horizon. He argues that this alignment is a positive force for change in organisations, with the potential for significant advantage through greater co-operation and transparency.