Treasury Transformation: Achieving Operational and Financial Efficiency

Endemol Shine Group, a leading media company that produces and distributes multi-platform entertainment content, wanted to invest in new, longer-term projects to meet growing audience demand. But as a highly leveraged organisation, the company needed to self-fund these ventures. Treasury therefore embarked on a challenging but rewarding transformation journey to improve internal workflows and make cash balances across the group work harder.  

Although Endemol Shine has traditionally produced a number of game shows for television, as well as serialised dramas, the market is increasingly calling for more scripted productions, such as films and series. These require investment over an extended timeframe, however, given the lifecycle of producing a film– from scriptwriting and securing buy-in from a broadcaster, to location scouting, casting, filming and editing. As such, the level of working capital required by the group is that much higher.

There is no unlimited external funding potential for these scripted productions because the group was – and still is – highly leveraged. Besides, our credit rating is CCC+, which makes it challenging to borrow from banks at a reasonable rate, and we were already paying a significant amount of interest per annum on our existing financing. It was clear that we needed to look for internal efficiencies to help free up cash from inside the business and to put surplus balances to better use.

So, in April 2017, we embarked on a treasury transformation project to do just that. We knew that there were significant efficiencies to be achieved because when Endemol and Shine were merged at the beginning of 2014, creating the Endemol Shine Group, the resulting treasury set-up was not really done ideally given the company was involved in many follow up transactions and restructurings. 

The ghost in the machine

We had a number of legacy cash management structures in place and bank relationship management was highly decentralised, across more than 40 banks as we found out. For a group with £2bn turnover, we also had far too many bank accounts – over 1,000 in total. What’s more, we had limited or no visibility into some of those accounts and it took almost six months for us to even discover that some of these accounts existed. Cash was sitting in those accounts, not being put to work, which was a waste of internal resources, so we saw the opportunities by unlocking these dormant cash balances. 

In addition, the cash forecasting process was highly decentralised and slow. It was up to the operating companies to report into head office, through a very manual process. By the time the relevant information reached treasury – assuming it actually did –the next challenge was that the information was already out of date.. From that point, it would then take even more time to collate all of the information from the different operating companies and build a complete picture at head office.

The fragmented systems landscape only compounded the delay and resource burden. Many of the operating companies were using different systems than head office and even each other. When information was extracted from the operating companies’ accounting systems, it had to be transferred into a head office Excel templates as a means of standardisation. There were then further layers of complexity at head office, where information was fed into the consolidation system and back out into Excel, and then into PowerPoint to present to management. 

Moreover, if one operating company decided to update a figure part way through the process, all of the workflows would have to start from scratch as nothing would automatically update. As a result, the cash forecast was being produced on the back of information that was over a fortnight out of date, meaning that cash could not be put to use in an optimal way. The fact that the cash flow forecasting process was highly manual also left it open to human error.

Making change happen

While there were significant changes that needed to take place to make treasury more efficient, we also wanted to ensure that the transformation process was as painless as possible. So, we began by looking at our existing systems and processes to see whether we could make relatively small tweaks, such as implementing additional functionality in the TMS, to get us closer to our end goal. 

At the time, our TMS was from one of the larger systems providers . We reached out to them as an initial step because we knew that systems improvements would be required to help the transformation project progress. Unfortunately, it took almost three months for them to respond to our request, and we felt that this did not bode well for what we wanted to achieve in a relatively short timeframe. Perhaps the size of Endemol Shine did not fit their preferred targeted client base. 

Our conclusion was that we had to go into a RFP process and look for another vendor and solution. During this process we ran into Zanders  – a treasury consultancy – who had just launched their Treasury Continuity Service. This service offers besides a system, consultancy and access to their expert knowledge base.  The system offered is Integrity from FIS.  Because we were a relatively small treasury team (four people at that time), we opted for the Treasury Continuity Service and became the first client. We not only bought the system, implementation and first line support nearby, but we also purchased a set amount of consultancy days for further development and continuity. Also our mid-size issue with system providers was solved by the support of the treasury consultancy firm who supports us in our queries to the systems provider. 

If there are any issues with the implementation, or ongoing niggles, the consultant, who knows the system inside out, can just parachute in and lend a helping hand. That additional help has been invaluable and meant we did not have to hire temporary staff. Furthermore, we actually managed to get the new TMS implemented over the summer of 2017, in three to four months which is really quickly. Previous experiences with various systems like Quantum, BELLIN and others turned out to be very helpful.

Another important element for us was the offered Software As A Solution (SAAS) approach which limited the involvement of our own IT department to opening only a port for the provider. Updates are done automatically by the system provider and as a user you always run at the last available version. Version 10 was just launched and completely in line with our first adopter status we became the first online user on version 10. Despite the foreseen implementation pressure, we also wanted to implement a  solution for global bank connectivity in parallel in order to have a powerful solution in place in only a few months’ time, so we issued an RFP for banking hubs, service bureaus and payments factory solutions, to five providers. We wanted to have visibility and control over all of the company’s bank accounts. In addition, we wanted SWIFT MT940s to be automatically uploaded into the treasury dashboard, and to be able to sweep balances up from the operating companies to the head office account in real time, as well as being able to put cash to better use within the group. The idea was also that this visibility would help us to close out some of our inter-company foreign exchange positions as well.

To help us achieve all of this, we chose FIS’s SWIFT Service Bureau (SSB) solution because again we wanted a business partner as part of the package, rather than just a vendor, and also the pricing was in line with our budget. It was important to us to have a collaborative relationship whereby we could work together to develop and build functionality that would be fit-for-purpose not only today but also in the future. FIS also started to expand its activities and our approach fitted and matched with their ambitions. Also for their perspective it was interesting to participate in our transformation project.

The onboarding process for SWIFT for Corporates was very easy. In fact, it took less than two months to get everything up and running. So, by September 2017, we were in a good place from a systems perspective. But all this was just the groundwork for the main piece of the transformation project – namely rationalising, streamlining and automating cash management and bank relationship management.

Perhaps we should also quickly mention the hidden costs of the old system set-up. You don’t upfront realise this, and how much is spent on various systems and local providers. By implementing a more centralised system approach we saved money at the end which made the business case very easy to sell to management. 

Gently does it

The next step was to request that the operating companies make us aware of all their bank accounts and give head office authority over those accounts so that we could make sweeps from them. Crucially, though, we did just not swoop in and immediately start closing bank accounts, because we did not want to meet with a wall of resistance from the business. Our approach was to not disrupt the business too much and to create a positive buy-in from the operating companies. But always start with the end game in mind!

When you undertake any kind of transformation project like this, it’s very important to be mindful of people’s feelings. Ensuring the operating companies felt empowered and freed up to do more interesting things was very important for us, and a critical success factor. We laid out a very good business case to them, carefully explaining how they would no longer need to spend a lot of time reporting their cash balances to us, as that would happen automatically through the bank. We also explained very thoroughly that head office would not move cash out of local accounts without co-ordinating with the operating company in question first.

There was a lot of support from the business for this new set-up. And between Christmas 2017 and the start of 2018, some of the local operating companies really appreciated not having to be in the office to upload their bank account data since it was done automatically by head office via Swift. So that helped cement this as a new way of working. The fact that the reporting is also done centrally is another huge benefit.

In fact, some countries have enjoyed being freed up from menial tasks so much that they have now outsourced other treasury operations to head office as well. This reduces costs, benefits them, and also offers advantages to head office – so it is a true win-win.

The road ahead

Now that head office has visibility and control over the bank accounts held by the majority of the group (there are still one or two small countries to get onto the system), we can start to think about rationalising accounts and bank relationships – but at a gradual pace that will not disrupt the business. Through this rationalisation exercise, we will be able to focus more on our core relationship banks. By ensuring that they get a good share of our business, we should also be able to secure some overdraft facilities, which will further improve our cash management.  

Also, now that we have visibility over the bank balances, we can focus on improving the cash flow forecast. We intend to build a link between the several accounting systems in use across the group and the new TMS in order to consolidate key information. We will then be able to use the aggregated information in the TMS to help automate cash flow forecasting. As we continue to centralise payments through the banking hub, that will also help to improve the accuracy of our cash flow forecasts. Forecasting will move from a snapshot at a moment in time into a real-time interactive process. It can be used by the operating companies themselves in managing their projects and countries. 

Another improvement we will concentrate on going forward is what we call a ‘cash P&L’. The idea is that now that we have detailed, up-to-date bank account information coming in, we should be able to allocate cash and movements on the bank account to certain categories, such as ‘receivables’, ‘tax’, ‘interest’, ‘salaries’ or ‘investment in productions’. We’re currently in the process of building an algorithm to help us do that and soon we will have a cash P&L ready at the end of each month, the next day, which is even more important without a central ERP and a fast closing process. Treasury will become an early warning indicator for the performance of our businesses going forward. 

In addition, we want to optimise our working capital management. The vast majority of our working capital is tied up in productions, and we work on around 800 productions a year, so we would ideally like to get to a point where every production has its own (virtual) bank account. That would make it much easier to see how the production is performing in terms of returns, cash requirements and so on.

Throughout 2018, treasury will be focusing on these goals, pushing the transformation through to its next stage. It’s a very exciting time for the team as we are able to make a tangible contribution to the growth of the group, whilst building an extremely efficient treasury function that we can be truly proud of.