Published: February 01, 2009
At the recent IACT (Irish Association of Corporate Treasurers) Conference in Dublin, Antony Barnes, Group Treasurer of Experian plc delivered a presentation on his experiences of running a FTSE 100 treasury function in Dublin. This article is based on the presentation and gives an insight into some of his key areas of focus.
Experian is a global leader in providing information, analytical tools and marketing services to organisations and consumers to help manage the risk and reward of commercial and financial decisions. Experian became an independent company in October 2006 following the successful demerger from its parent company, GUS, a long-established retail and business services group in the UK. Since then, the company has made a series of strategic acquisitions, which have extended the scope and geographic reach of its activities, such as Serasa in June 2007, which took Experian into Latin America.
Around half of annual revenues are derived from North America and a quarter in UK and Ireland, with substantial activities in EMEA, Latin America and Asia Pacific. The company employs around 15,500 people in 38 countries, supporting clients in more than 65 countries. Its annual sales are US$4.1 billion with EBIT of $938m and net debt of $2.7bn.
Experian plc is listed on the London Stock Exchange (EXPN) and is a constituent of the FTSE 100 index. Its corporate headquarters are in Dublin, Ireland with operational headquarters in Costa Mesa, California and Nottingham, UK.
Experian’s Group Treasury has a wide range of responsibilities to ensure an appropriate capital structure for the Group. These include Funding, Financial Risk Management, Cash Management, In-House Financing and Bank Relationship Management. In particular, there are a series of key principles in the way that treasury conducts its activities. During his presentation, Antony explained,
“Our aim is to fund the Group in a cost-effective way whilst minimising financial risks. Surplus cash is kept to a minimum and residual balances are invested prudently.
As a corporate treasury function, our primary consideration is to protect the interests of the company and its shareholders, not to act as a profit centre or to speculate. Furthermore, we aim not to complicate our activities, introducing financial products only where there is a clear business rationale for doing so.”
At Experian, treasury does not operate as a payments factory for commercial payments (which is managed in the shared service centre) nor does it make risk decisions on behalf of operating companies. Instead, treasury acts as an advisory function and suggests appropriate ways of mitigating risk.
Experian has a clearly delineated treasury organisation to allow for the appropriate segregation of duties (fig 1). The department manages Experian’s treasury requirements according to a defined treasury policy approved annually by the main Board, which covers the key principles, funding, cash management, approach to FX and interest rate risk. Based on the treasury policy, a Treasury Committee, comprising the CFO, Director of Corporate Finance, Group Treasurer, Head of Group Tax and Group Financial Controller meets monthly to discuss execution detail. The minutes of these meetings are also distributed to the Board and to Internal Audit. This Committee reviews the Treasury Committee Report produced by treasury, including balance and exposure information. Funding initiatives are agreed and any necessary changes to procedures and counterparty limits are discussed and approved.
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Antony explained that managing group funding involves not only capital markets issuance and bank debt, but also managing the relationships with rating agencies and partner banks. Experian’s funding has historically been sourced from a combination of both capital markets and bank facilities. The company has issued Eurobonds, and has both committed and uncommitted facilities. In the current economic climate, capital market issuance is difficult and, by historical standards, expensive for a BBB+ company and few such companies have issued bonds recently, except for some utilities. Consequently, the company is relying more heavily on bank funding, which is in place until 2012.
In the current economic conditions where lending criteria are more stringent, maintaining clear communication with partner banks is an important part of treasury's function.
Antony continued that managing credit rating agency relationships is a vital aspect of treasury management for every company. Rating agencies need to be familiar with financial projections and business strategy, so it is important to provide sufficient, accurate information on which to base a credit assessment; however, unpublished information should be managed with caution to ensure that it is not inadvertently released as part of the credit rating assessment reports published by the agencies.
In the current economic conditions where lending criteria are more stringent, maintaining clear communication with partner banks is an important part of treasury’s function. Experian has a strong international banking group, including major banking players in each of the regions in which the firm operates. The company set up a revolving credit facility with the syndicate banks chosen by Experian. Pricing was initially discussed directly with each partner bank, using a draft term sheet prepared by the company. Experian sought expressions of interest from potential banks and then finalised the term sheet and pricing before starting the legal negotiations.
As most of Experian’s partner banks are also clients, the company arguably has a deeper relationship with their banks than other corporates. Antony emphasised the importance of good, clear communication in relationships with banking partners. Furthermore, he explained that as with any partnership, both sides need to understand the value of the relationship to the other; therefore, you can’t squeeze too hard in order that a deal still has value to your bank.
Experian has taken the approach of securing funding in the most appropriate currencies and markets, then overlaying currency and interest rate management. Therefore, as the company inherited Eurobonds denominated in GBP from GUS, drawn bank debt is denominated in USD. Then borrowings are aligned with overall profits in each currency: therefore, if profits were 70% USD, 30% GBP and 10% EUR, treasury would use FX swaps to swap its borrowings to reflect a similar currency mix. Interest rate swaps are then used to fix a portion of the interest rate risk. As an example, generally Experian typically maintains around 50% of floating rate debt, with the remainder fixed for one to five years.
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Antony outlined Experian’s cash management strategy as follows,
“Like many organisations, we probably have too many cash management banks; in our case, this is partly because we have a geographically dispersed business and many banks are our customers, so these relationships have developed locally over time. When the time is right, we will look at consolidating our cash management with a member of our core banking group for the relevant region. Our cash management principle is to centralise as much cash as possible and to monitor closely the cash balances which we cannot centralise. We aim to ensure that cash is available where it is required by the business, at the right time and in the right currency - but to deploy no more cash than the business needs.”
As part of Experian’s centralised cash management strategy, treasury has established cash pools in GBP, USD and EUR. In Europe, cash management has become easier since the Euro was introduced and SEPA will help in the future. The company recently decided to set up a cash pool in the Nordics for which a local bank was appointed, having agreed with its international banking group that more comprehensive coverage across the region was required than could be provided by the global cash management banks. Similarly, since the acquisition of Hitwise in 2007, there are more legal entities in Australia and New Zealand, so an AUD cash pool has been established, and treasury is consolidating Experian’s banking in Australasia in a single bank.
Looking ahead, a priority for Experian is to align its treasury activities with those of its shared service centre and consequently, one objective will be to standardise internal systems. The treasury management system, SunGard’s AvantGard Quantum, was recently re-implemented to bring it up to date and take advantage of functionality such as the management of intragroup accounts. By standardising back office systems, the aim is to bring treasury closer operationally to the rest of the group and therefore remain relevant and responsive to the needs of the operating businesses.
Antony outlined that from a risk management perspective, treasury needs to make sure that it is fully aware of its up to date counterparty positions in order to be in a better position to set appropriate limits.
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