Published: November 01, 2012
While many companies have sought to centralise their cash and treasury operations in recent years, companies such as France Télécom have adopted a more bespoke approach according to the specific needs of the business. Local and regional/global treasury centres collaborate closely to leverage the strength of a centralised treasury technology, advisory and policy framework, whilst maintaining some operations and expertise at a local level to respond quickly and effectively to local market conditions and manage specific cash and treasury management activities. In this article, Ludovic Pech, CFO at Orange Romania, outlines the experiences of a major local finance centre in the France Télécom group.
The France Télécom group, which owns the Orange brand, has a highly collaborative approach to finance and treasury.
Our Group Treasury function is based in Paris. It determines group treasury policy and performs a wide range of activities on behalf of the group and for its subsidiaries globally. It provides us with financing and liquidity and gives access to more sophisticated treasury management tools and financing instruments than we would be in a position to acquire locally. As telecoms is a very capital-intensive industry, with operators having to invest heavily in licences and networks before they make profits, it is critical to our business to be able to count on the expertise of this central team and benefit from the high rating of our group.
In addition to Group Treasury, in-country finance teams are in charge of local cash optimisation and daily treasury management activities. They play an essential role in steering local cash performance and risk management. While these issues are not new, they are now at the very top of the CFO’s agenda, and with even more intensity, after three years of crisis.
Treasury in Orange Romania is a critical function. After Poland, Romania is the second largest country in the group in continental Europe that is not part of the Eurozone. As such, we deal with local currency risk and hedging
We therefore conduct a variety of cash and treasury management operations locally and perform business functions that require depth of local insight beyond the plain vanilla cash flow forecasting and reporting activities common to every company. This includes more complex risk analysis and hedging operations than is required for other group affiliates in the Eurozone.
In an environment with high currency volatility in recent times, increasing credit default risk and more restrictive access to financing, the role of treasury becomes even more important to the business. In that respect, the combination of central treasury expertise in Paris with local operations in Romania is a very positive one.
We also co-ordinate with Group Treasury to determine appropriate short-term financing strategies. In some cases, local borrowing conditions in Romania may be very competitive, but we need to balance the premium rating of Orange Romania on the local market and relatively higher country risk (lower medium grade for Romania compared to high/premium grade for France).
Furthermore, Orange is one of the most significant businesses in Romania, so it is important both for us and our banking partners that we maintain strong links with the business and banking community locally. As market leader, Orange serves over 10 million mobile customers out of a total of 19 million inhabitants. It is the third largest company in Romania in profit terms and one of the main foreign investors, reinvesting approximately two-thirds of its profits every year to upgrade its network and bring more innovation to the market.[[[PAGE]]]
We work with three main banks locally in Romania. Two of these banks are pan-European banks, including ING, and the other is a local Romanian bank. Our relationship with ING started 15 years ago as ING had been the first banking partner of the local mobile operator that was rebranded Orange. Based on the success of this partnership and the quality of the services that ING provides, we have built further on this relationship for a variety of reasons, in addition to the wider benefits at a group level:
The bank’s strong credit rating and financial profile is particularly important in Romania. There is a large number of banks operating in Romania, with significant variation in their credit quality and their breadth of solutions. Some of the foreign banks may not be in a position to continue investing in the development of their Romanian branches in the long term. Consequently, ING’s credit quality and comprehensive range of high quality solutions and services is a major factor in our choice.
ING has a strong domestic presence in Romania, and a pan-European footprint, which enables us to meet our local payment and cash management needs, but also to integrate with other group entities and our central treasury department successfully.
The quality and responsiveness of service that ING provides has been a particular differentiator. Our relationship manager is proactive in providing information and suggesting solutions to meet our business challenges. In addition, in an environment of considerable volatility, we receive rapid responses to queries and evolving business needs.
We have been impressed by ING’s continuous focus on enhancing the convenience and ease of access to services and efficiency tools. As a business, we are seeking to optimise efficiency and demonstrate best practices in the way that we conduct financial management, so ING’s ongoing commitment to innovation and enhancement is an important attribute.
We need to receive cost-effective solutions, and ING has proved competitive in the pricing and commercial conditions that they offer us.
Initially, ING provided the guarantee for Orange’s mobile operator first licence, but the range of services has evolved from basic products, such as guarantees and lending, to solutions such as payments and cash management, capital markets and FX. One important service that ING still provides is cash collection. With over 10 million customers in Romania, most of whom pay cash, this is a vital service, and service reliability and cost-effectiveness are key. Customers can make cash payments to Orange in a variety of ways:
This combination of cash collection methods provides flexibility and convenience to our customers, which in turn assists with prompt payment. While direct debits exist in Romania, these are not yet widespread. We expect this to increase in the future, but it will take time and cash is likely to remain the predominant collection method for the foreseeable future.[[[PAGE]]]
Some years ago, many multinational corporations sought to centralise their cash and treasury management fully into global or regional treasury centres. Treasurers are now recognising that it can be beneficial to balance centralised and decentralised operations, leveraging local banking relationships, funding and investment opportunities and managing local cash management requirements. This is particularly the case in more volatile markets, countries in which the company has a dominant presence, or those with a strong cash-based culture where payments and/or collections are more difficult to centralise.
To adopt a combined centralised and decentralised model successfully, policies, procedures and information flows between Group Treasury and regional or in-country treasuries need to be defined clearly to ensure efficiency, control and transparency. In addition, local finance functions need to ensure that they have the right skills to deal with cash and risk, and manage banking relationships. A strong banking partner, with the proximity and depth of solutions and expertise locally, as well as regional strength to co-ordinate services and support centralised business activities is an essential partner in a successful regional and local treasury strategy.
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