Generating Value through Treasury Technology at CLP

 

By Francis Ho, Senior Director - Group Treasury & Project Finance Department, CLP Holdings Limited

 

CLP is committed to implementing best-in-class processes, controls and decision-making across its business, so is its treasury department. As the group continued on its growth trajectory, treasury needed a more robust, scalable treasury management solution to meet its current and future needs, particularly given the fast-changing market and regulatory environment. In this article, Francis Ho, Senior Director - Group Treasury & Project Finance of CLP Holdings, describes the process of selecting and implementing a solution in treasury, the outcomes that treasury has achieved so far, and future plans.

Key Points Recent rapid growth and future planned expansion led CLP to decide to implement a more integrated treasury management system (TMS) While the company operates in Asia Pacific, it was keen to embrace best practices in treasury where possible, and found software provider Reval’s cloud-based SaaS solution best suited to its requirements Implementation took 10 months and the author outlines the many improvements achieved by the single, integrated system Future plans include exploration of the potential to extend use of the system both in Hong Kong and beyond

Project background 

We have a centralised treasury organisation with a broad remit, including cash management, cross-border and intercompany financing, project finance, risk management, treasury control and compliance. As at 31 December 2016, our treasury team handled a derivatives portfolio with a notional value of around $11.2bn USD equivalent. Around $6.7bn of approximately $9.8bn USD equivalent in credit facilities was a drawdown amount. In addition, we managed around $600m USD equivalent in surplus bank balances, cash and other liquid funds.

With our rapid growth in recent years and business plans for the future, we have recognised the need for a more integrated treasury management system to meet our day-to-day needs and future requirements, particularly for reporting and control. Also in view of regulatory developments such as derivative reform, new rules on hedge accounting, and Basel III, we decided to be proactive in procuring a new treasury management system.
 

Project objectives

While CLP operates in Asia Pacific, we are keen to embrace global best practices in treasury wherever possible. We needed a broad range of functionality to cover the full spectrum of our treasury activities, including debt, liquidity, foreign exchange (FX), interest rates and counterparty risk, supported by extensive reporting and workflow controls, to facilitate our early adoption of a new Hong Kong Financial Reporting Standard on financial instruments (HKFRS 9). We were also looking for flexibility and scalability to manage our business considering the evolving regulations and ongoing market volatility. It was important for us to simplify implementation, adopt best practices, and save maintenance effort with a cloud-based SaaS (software as a service) solution. Software provider Reval was selected as it met our business requirements.

 

CLP’s requirements  Visibility - enhance the reporting and visibility of treasury information Consolidation - centralise treasury information to holding company Repeatable processes - standardise and re-engineer our workflow and process Automation – automate our workflows as far as possible to enhance operational efficiency and control Scalability – roll out the system to other regions and business units, and expand the use of system functionality in the future Hedge accounting and compliance – achieve a ‘one-stop’ solution to support mark-to-market, effectiveness testing, disclosure and other regulatory requirements

 

[[[PAGE]]]

 

Project scope and implementation

Our implementation included modules covering FX, cash management, bank account management, liquidity planning, investments and debt, risk management, payments, hedge accounting, including credit/debit value adjustment (CVA/DVA) reporting under applicable Financial Reporting Standards, and sub ledger capabilities.

During a 10 months’ implementation period, which involved a parallel run, the team worked diligently to meet our first reporting period under HKFRS 9. We appointed a dedicated internal resource team to work with Reval throughout the project; as a relatively small team with stakeholders across the business, we opted for a phased approach to work around the internal resource constraints. 

Furthermore, we were proactive in engaging with regional stakeholders throughout the implementation period to ensure that they understood and recognised the benefits of the new system and the changes in processes and reporting. An essential success factor was to provide them with sufficient training.

 
Project outcomes

With a single, integrated system, we have achieved significant improvements in the efficiency of our processes, and in our data quality, timeliness and integrity to support risk management, decision making and reporting. For example:

Performance – We are now able to obtain more timely reports for position and exposure reporting, both on a daily and on-demand basis. Our mark-to-market process for the whole of our Hong Kong derivatives portfolio has been shortened from around three days to less than an hour.

Automation – We now have timely and accurate visibility over our cash across the group. Our previous liquidity forecasting process, which involved multiple spreadsheets, has now been automated, resulting in significant time savings.

Data accuracy – With more automated processes, we have reduced the level of manual input, leading to more accurate and reliable data with a lower risk of errors.

Scalability – The scalability and flexibility of the solution has allowed us to respond to regulatory and accounting changes in a timely manner at minimal cost. For example, we were able to early adopt HKFRS 9 in 2016, significantly ahead of the mandatory adoption date in 2018.
 

Overcoming challenges

As an early adopter of HKFRS 9, new valuation and disclosure requirements created significant challenges throughout the implementation process, with no representative examples or precedents as reference points.

Andre Blumberg, Director – Information Technology of CLP Holdings, said, “One major challenge was adapting the established processes that we have long used to the latest market best practices embedded in the SaaS solution. It was a mind-shift well worth the effort considering the benefits to our company.”

In addition, the ‘people’ aspects of a complex, multi-stakeholder project required careful management. For example, we had to work closely with team members to demonstrate the value of changing work practices in order to take advantage of the advanced system functionality and enhanced efficiency.

Communication was vitally important. Given the importance of security, control and data integrity, we maintained a constant dialogue with relevant business functions to put these issues at the centre of our project planning and delivery. Furthermore, it was crucial to have the right skills within the project team, as well as a common commitment to our project objectives and a robust project governance structure. This enabled us to make timely decisions at the appropriate management level.

 

[[[PAGE]]]

 

Future plans

In the months ahead, we will explore the potential to extend our use of the system, both in Hong Kong and beyond, including opportunities for further automation, greater efficiency and productivity, and enhanced information quality and integrity. We will also ensure that our treasury system capability keeps pace with the evolving needs of our business units, advances in technology, regulatory developments and best market practices.
 

Sharing advice

The approach to implementing a cloud-based SaaS solution may be quite different from that of an on-premise, customised solution. As such, it is essential for relevant stakeholders to be aware of the differences in approach at an early stage. It is also important to ensure that the business requirements are fully understood and documented before implementation, so that both internal stakeholders and the solution provider share a common understanding. Any specific or unique business requirements should be clearly communicated well in advance, as these may take longer to address during the project. Finally, there will be a need to adapt your existing processes to what is already built in the solution as part of the cloud journey. We should plan ahead for the adaptation.  

 

CLP CLP was founded in Hong Kong in 1901, at a time when electricity was still a novelty worldwide. Today, the group powers millions of homes and businesses across the Asia-Pacific region. In Hong Kong, CLP’s vertically integrated electricity supply business provides a highly reliable supply of electricity to 80% of the city’s population. Outside Hong Kong, the group invests in the energy sector in Mainland China, India, Southeast Asia, Taiwan and Australia. Business activities include power generation, transmission and distribution, and electricity and gas retail activities, with the aim of meeting Asia-Pacific's energy challenges in a sustainable manner from one generation to the next. As at 31 December 2016, CLP’s portfolio comprised 18,622MW of equity generating capacity and 5,159MW of capacity purchase, among which 3,090MW and 461MW were from renewable sources respectively.

 

Francis Ho Senior Director - Group Treasury & Project Finance Department, CLP Holdings Limited Francis Ho is responsible for CLP Group Treasury including corporate funding & project finance, financial risk management, credit ratings, debt investors and bank relationships as well as compliance of treasury activities. Prior to the assignment at Group Treasury, Francis was a project financier at CLP Power Asia, specialising in project finance, investment appraisal and financial risk management for CLP’s overseas investments in China, Australia, India and South East Asia. He held various management positions in investment banking before he joined CLP. Francis is the Convenor of the Hong Kong Association of Corporate Treasurers and a founding member and the Chairman (Membership) of the International Association of CFOs and Corporate Treasurers (China). Their objectives are to promote the treasury and finance profession in China and Hong Kong.