How Treasury Supports WPP in Asia Pacific

 
Asia Pacific is one of communications giant WPP’s fast-growing regions, as countries across the continent embrace sophisticated and innovative communications, media and data solutions and multinational corporations extend their geographic and digital footprint. As the business and regulatory environment evolve, treasury’s role and priorities are also developing to support the business’ changing needs, as Alex Koh, Regional Treasurer, Asia Pacific for WPP outlines.

Treasury organisation

Our treasury is organised on a regional basis. One team is responsible for cash and treasury management in Asia Pacific, but team members are located across different parts of the region, including Australia, Hong Kong, India and China. As we operate in different locations, we don’t often have the opportunity to hold face-to-face meetings, so technology such as instant messaging, cross-border networks and collaboration software are essential.

Our team structure reflects the unique characteristics of our business: for example, although treasury defines policy and strategy, and manages treasury operations at a regional level, we need to support the activities and bespoke requirements of local business units. Our business is changing, however, which has an impact on treasury at both a local and a regional level. For example, historically our operating expense base was mostly in the currency of the countries in which we conducted business; however, this is changing as our cross-border interactions increases, so managing cash and risk has become more complex. As we do not have imports or exports of physical goods, we have limited trade finance requirements, hence cash and working capital management is a priority for us.

Cash management priorities

As a global business, establishing visibility over cash is a primary objective for WPP. This is a significant undertaking, as we have a large number of entities, bank relationships and bank accounts, further complicated by the highly acquisitive nature of our business. HSBC has been our primary cash management bank in Asia Pacific for more than fifteen years, and we work with the bank in 16 markets across the region. In addition, we maintain selected local banking relationships to facilitate in-country requirements. Maintaining these relationships is important for a variety of reasons: firstly, in-country regulations often restrict the services which foreign banks can offer; secondly, local banks offer a more extensive branch network than foreign banks are able to offer in some markets and thirdly, these banks have valuable insights into regulatory developments in-country which complements the expertise and advisory that HSBC provides to us.

However, the number and diversity of our banking relationships mean that maintaining complete visibility across cash balances, across regions is an issue. Collecting timely and accurate information and combining this data in a consistent and meaningful way can be difficult. Consequently, we needed a robust framework that would allow us not only to access information on existing bank accounts, but also to integrate new entities, bank and accounts easily in the future. We therefore decided to implement SWIFT to report account balances through HSBC into our Hong Kong entity. Although a ‘clean’ and convenient solution, it is a major undertaking given the need to complete documentation for more than 1,000 accounts across various countries. 

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We have now integrated more than 80% of accounts, and we are continuing the process of capturing the remaining accounts. As a result, we will be able to integrate the data from SWIFT with treasury information for cash positioning, liquidity management and forecasting.
 

Managing liquidity

Our approach to liquidity management has evolved over recent years as the regulatory and market environment has changed, and our cross-border exposures increase. There are a limited number of countries in Asia Pacific who have truly open currency borders, but as other markets in the region have started to ease regulations, liquidity management opportunities have increased. However, identifying and realising these opportunities can be challenging in practice given complex restrictions and a different pace of change in each country. For example, in China, the regulations restricting cross-border pooling are being relaxed progressively and piloted in special zones to evaluate impact, prior to being fine-tuned or expanded geographically. Due to this evolving environment, first mover advantage may not be sustainable, or be beneficial longer-term, and circumstances will differ according to the nature of the industry.

Hence exploring regulatory opportunities, and defining a regional liquidity management strategy, is an iterative, and not always a linear process, as countries are liberalising (or in some cases tightening) capital and currency controls gradually, and often at markedly different rates. We now have both notional cash pools and cash concentration in-country structures with HSBC, as well as multicurrency regional cash pools with header accounts in Singapore and Hong Kong. Notional pooling is typically more appropriate for the nature of our business but this structure is not permitted in some Asia Pacific countries. Hence we tailor bespoke cash concentration structures for such situations.

A valued partnership

HSBC has been an essential partner to our business, not only in enabling us to achieve visibility and ultimately control over cash, but also to help us understand changes to the regulatory environment, and the impact on our business. As the bank knows our business well, it is well-positioned both to translate evolving regulations into practical solutions, and also to anticipate changes such as Basel III which will undoubtedly affect our business in Asia Pacific but in as yet indefinite ways.

HSBC acts as an advisor to us as our industry experiences radical transformation, particularly the shift into the digital space. This has both operational and strategic implications in treasury. An immediate impact, for example, is that cross-border digital media vendors are paid in USD rather than local currency of traditional media vendors, which has currency risk and liquidity implications. Consequently, FX risk and cross-border settlement exposures are beginning to have a more significant impact on operations.

Similarly, big data is becoming a more important topic for the advertising industry as clients seek strategies that leverage data to anticipate and measure consumer behaviour, and monitor the effectiveness of their marketing strategies. From a treasury perspective too, we are seeking to find new ways to leverage data to tailor our cash, treasury and risk management strategies to meet the changing needs of our business.

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Evolving relationships

As both our own businesses, and the regulatory and market environment in which we operate evolve, we will continue to work with our partner banks and business units to understand their changing needs and how we can best respond to them. This includes cash inflows and outflows, the channels and currencies for these flows, and how the changing regulations impact these dynamics. Through our cash, working capital and risk management role, we aim to reduce the risk to the organisation, support the client sales and delivery process, enhance operating efficiencies, and ultimately deliver shareholder value. 

Alex Koh Regional Treasurer, Asia Pacific, WPP plc Alex Koh is Asia Pacific Treasurer for WPP plc, the world's largest marketing communications group. He is based in Australia and has worked in China, Hong Kong, Malaysia and the UK. He was previously based in Shanghai as CFO for Treasury Holdings China, an Irish property group, and in Hong Kong as Director of Finance for McKinsey Asia. In Kuala Lumpur he was Group Treasurer of Sime Darby, the largest locally diversified conglomerate in Malaysia. He has also worked in London with KPMG and UBS.  Alex is a Fellow of the Institute of Chartered Accountants in England & Wales and graduated from the London School of Economics.