By Joseph Neu
An economic slowdown in Asia reveals how world-class treasury efficiency has become a must-have.
The importance of world-class treasury efficiency has become more of a reality as the major Asian economies show signs of slowing down. This was a major theme at the 19th Annual Conference on International Cash, Treasury and Risk for Finance Professionals in Asia in Singapore.
And while it was stated by one speaker at the conference that there was “plenty of oxygen” to supply the region with economic growth, the mood of the crowd was a bit gloomy. Indeed, EuroFinance polling at the conference indicated just 36 percent felt more confident about economic growth in the coming year, versus 35 percent less confident.
Embrace uncertainty
The prospect of slower growth fit conference presentations on supporting suppliers and accelerating receivables to boost working capital. The uncertain outlook also is something world-class companies should not fear. For example, according to Ashish Gupta, finance director for East Asia at healthcare and consumables group Reckitt Benckiser Thailand, the uncertainty is good news for those who follow his seven principles:
- Bigger is better. Larger companies have greater stability and can cope better with uncertainty.
- Understand the global market. Focus on fundamentals, since the news can change day to day.
- Those who can analyze data will win. The data deluge is inevitable, but also is an opportunity.
- Profits essential for growth. Financing is key, but self-financing guarantees financing in times of uncertainty.
- Manage currency. Hedge 50 percent of your exposure, since you’re never 100 percent right and never 100 percent wrong.
- Welcome crises. Keep your action plan simple to reduce reaction time and lost opportunities.
- Globalization cannot be achieved without localization. Great businesses with great business plans have failed due to lack of local knowledge. “Ambiguity is here to stay,” Mr. Gupta said, “so it will be difficult to determine significance of events and their implications.” Thus, firms should look out for trends, but not rely on them.
World-Class from the outside
Day 2 of the conference highlighted several prior EuroFinance award winners, who presented case studies on world-class treasury processes.
One of the more intriguing presentations was from Microsoft’s Group Treasury Manager, Jayna Bundy, who showed how the firm’s treasury follows the lifecycle of each dollar earned from credit services (collections) to cash management, capital markets (liquidity and investment portfolios) and corporate finance (debt issuance and shareholder distributions).
There are also two overlay teams that follow the dollar through the whole cycle; these are risk management and treasury operations. Their emphasis has been on increasing visibility to cash via electronic bank statements, while reducing cost through simpler infrastructure and processes, and using this visibility to increase cash mobility by wiring cash out of at-risk banks.
A big turning point for Microsoft’s treasury, Ms. Bundy noted, was a challenge Microsoft’s Treasurer George Zinn put to each group within finance to determine how much cash the company had. A simple question turned out to yield not so simple an answer. In fact, each group came up with a different answer depending on how they defined cash: cash management saw it differently than tax, and both saw it differently from accounting. This realization prompted a project to create “one source of truth” for cash at Microsoft. The result is a realtime cashview dashboard that makes use of the Power View feature in Office. It lets treasury drill into a current view of cash balances by bank, currency, business unit, and country, and then segment it by available and unavailable balances.
World-Class from the inside
Two cases studies from MNCs based in the region underscored the fact that world-class treasury is being practiced in the Asia-Pacific, most notably in India. Ashish Sardana, General Manager, Group Treasury & Funding Management at Bharti Airtel, India was the first of these, presenting on how treasury supported the company’s foray into Africa and other non-India markets, while at the same time acquiring a 49 percent stake in Qualcomm India and doing an IPO for a major India sub. Mr. Sardana described how treasury went from managing a single currency, almost no debt and domestic cash and banking relationships, to managing 17 exotic currency pairs, almost $13bn in net debt and cash management and banking relationships in 20 highly regulated markets with nascent banking infrastructure.
Along the way, treasury completely shifted its reliance on bank financing to tapping global bond markets, capitalizing on global investors’ growing appetite for emerging market debt.
Larsen & Toubro, the Indian engineering and construction firm, did not have quite such a dramatic rise to MNC status. However, Ramaswamy Govindan, VP, Corporate Finance & Risk Management, has his finance team “going beyond the mandate,” as he noted in his presentation.
One of the highlights is how the finance group has elevated risk management to add value at a strategic as well as tactical level to business planning and decision making. L&T teaches a framework of analysis that tries to get finance people to understand the business risks—for example, the details of steel supply and production—as well as train them to overcome preconceived biases, borrowing from physiologists to see “life as it is.”
According to the framework (see chart below), 55 percent of risk decisions should incorporate quantitative and qualitative information from the external environment to include economic data, economic research reports and interaction with experts. A further 30 percent comes from the internal environment, principally from interaction with the businesses. Both should include historical perspective on economic and business cycles, as well as the impact of politics and policies. The critical 15 percent remaining comes from intuitive intelligence based on the perspective and point of view of the individual analyst, which is why the anti-bias training is important.
Like companies the world over, those in the Asia-Pacific region are learning how, in slow-growth times, treasury can provide the fuel to keep the company’s financial engine running smoothly.