Published: June 15, 2009
Founded in 1909, Balfour Beatty is a world-class engineering, construction, services and investment group, employing 40,000 people delivering projects that directly improve lives and communities – from hospitals to highways, from railways to water supply systems, from schools to power generation and transmission lines.
Balfour Beatty is now ranked 19th in the international league table of contractors.
It builds, upgrades and manages major road systems in the UK, US, Dubai and South-East Asia, is a leading player in the development and maintenance of major and regional airports and is an international leader in the design, construction, management and renewal of rail assets and systems.
In the United States, the Group has recently acquired Balfour Beatty Construction US and Balfour Beatty Communities, which specialises in military housing PPP concessions, which means that around a quarter of Balfour Beatty’s business is now in the US.
A significant proportion of Balfour Beatty’s business is engaged on long term construction contracts, so payments are made to suppliers at project or business unit level in accordance with project deliverables, usually using BACS payments or cheques. Our cash flow cycle is quite predictable during the course of the year so we know for how long we are able to invest cash, usually no longer than one or two months. Since our acquisition in the United States last year, we have more cash generated there than in previous years, whereas there has been some reduction in cash balances in the UK.
Treasury checks the cash position each day and we make our investment decisions accordingly. In the past, bank deposits have formed the basis of our investment strategy, with limited use of money market funds (MMFs). With a very different financial landscape to a year ago, we have made some changes to the way that we manage our short term investment activities. For example, over the past eight or ten months, we have started to use a broker to enable us to spread our counterparty risk and avoid concentrating our cash in a small group of banks. We have also significantly increased our use of MMFs, partly due to their inherent diversification, and partly due to the returns, which have been higher than bank deposits over the past six months. Furthermore, with the volatility in the market, using MMFs avoids the issue of selecting a deposit tenor and allows greater access to liquidity. While the proportion of cash which we invest in deposits or MMFs varies, we have typically invested around 75% of cash in MMFs during 2009 so far.
[[[PAGE]]]
We typically use two MMFs regularly and we have access to others. We select our MMFs based on the fund holdings (avoiding instruments which we perceive to have higher risks, such as medium term notes or where we consider there to be too high a concentration in one instrument), the portfolios’ average yield to maturity and the net investment yield. Although yield is not the ultimate objective, it plays a part in our decision and is the distinguishing factor between funds which are otherwise similar in their composition. Initially, we invested or drew down on MMFs by contacting the fund provider by telephone, but in 2008 we were approached by MyTreasury and introduced to their MMF portal. While we had not previously contemplated using a MMF portal, we were attracted by the clarity of the dealing process, transparency of information on fund holdings and the audit trail. Significantly too, the solution was provided at no cost to Balfour Beatty. As the system is web-based, we did not need to implement additional hardware to support it.
Since we started using MyTreasury, we have been very satisfied with the outcomes. We have easy access to information about net investment yield and investment portfolios, and we have received very good support from the MyTreasury team. We have not experienced any detrimental effect in our relationship with the fund providers as a result of dealing through a portal. The funds we invest in are provided by our relationship banks: we still contact them regularly to discuss the term for which we will be investing in a MMF and they still make sure that they understand our business needs. If we invested in a larger number of funds, then this situation could be different. We have not integrated the portal with our treasury management system as our transaction volumes do not warrant the additional investment in an interface between the two systems.
Although the market remains very volatile, we do not anticipate any change to our short term investment strategy. Our investment approach is already very conservative, and although we may consider investment in government debt in the future, we are comfortable with our current strategy. We have had a very positive experience with MyTreasury and using a MMF portal has had a very favourable impact on our treasury activities.
How Thought Leadership Can Reduce the Cost of Sales by Patrik Havander, Havander & Partners A focused attention on the costs incurred by the global sales and marketing processes is becoming increasingly important for corporate banks and their transaction banking departments. While the client/bank relationship remains vital, research has shown that in fact relationship selling […]
