With over ten years at the helm of the DFS Group’s treasury operation, Kenneth Ng has seen the profession go through some changes in his time. Yet, his alignment with the company’s core beliefs and values has ensured that he has not only been able to build a function that is fit for purpose, but also one that goes above and beyond to ensure that it provides the business with the tools to succeed.
Director and Corporate Treasurer
After more than 50 years in the travel retail industry, DFS Group, a group company of Louis Vuitton Moet Hennessy, is recognised as a leading luxury shopping destination for the world traveller. The group offers products across three pillars of luxury: fashion, watches, jewellery and accessories; spirits, wine, tobacco, food and gifts; beauty, fragrances and well-being. DFS operates across three continents and employs more than 9,000 people.
Hong Kong-based luxury retailer DFS Group is a company founded on a number of core beliefs and values. It encourages its people to be curious, embrace change, work collaboratively and value each other, and also to act with integrity and humanity. Combined, these beliefs facilitate a culture akin to that of a ‘family’, enabling the organisation, which is spread around the world, to work as one in order to deliver on common goals.
As Director and Corporate Treasurer at the company for over ten years, Kenneth Ng and his treasury department are the embodiment of these values. In his role, Ng and his team provide the full scope of treasury services including financing, cash management and FX risk management to its stores located around the world. The treasury also works as an internal advisor, on hand to help the management teams of each store to better understand treasury matters. All of this is achieved with a lean team of three, including Ng, a Treasury Analyst and a Treasury Manager, as well as the support from the company’s global Shared Service Centre (SSC) housed in Singapore.
As a qualified accountant, Ng began his career working at one of the major CPA firms before moving onto work as a financial controller for the subsidiary of a blue chip in Hong Kong. “In both of these organisations I was primarily focusing on accounting matters,” he explains. “But I was curious to explore other areas of finance and put myself forward to work on numerous projects and found myself working on tasks associated with corporate treasury, such as being involved in a syndicated loan project, for example.”
It was whilst making this move away from accounting that Ng realised that corporate treasury was a perfect fit. “Accountancy, whilst a vital function in any business, is very process driven and does not require you to work with many other stakeholders within the business,” he says. “Treasury on the other hand is a more dynamic role that is not only driven by processes, but also requires you to think strategically and work with a wide variety of internal and external stakeholders.”
Indeed, it is this latter point that Ng says particularly drew him to the role. “Whilst I am more than happy to be working with numbers, it is interacting with people and communicating that I really enjoy,” he explains. And because of what is expected from the DFS treasury team, Ng spends a large portion of his time communicating, and more importantly collaborating, with both internal and external stakeholders.
As previously mentioned, the DFS treasury team is housed at corporate level, providing each store and the SSC with treasury solutions and funding, as well as acting as a quasi-advisory function to the Group’s management teams around the world. “There is a real requirement to work closely with the people on the ground in each store, as well as the SSC to fulfil this mandate,” he says. “It is important to ensure that we understand their pain points and the solutions, or financing they require to overcome these.”
This partnership flows both ways however, and Ng makes sure that he continually communicates what the treasury needs in return to be able to fulfil its duties proficiently. “It is vital that they understand how the treasury function works and the importance of providing us with accurate cash flow forecasts, for instance. Only by doing so are we able to fulfil our role and ensure that they are able to operate smoothly from a financial point of view.”
Armed with an understanding of what the business needs, Ng and his team are then able to reach out to external parties to obtain this. Again, it is communication and collaboration that is vital. Ng highlights the club loan deal, which DFS closed last year, as a prime example of this.
“Soft skills, such as the ability to effectively communicate, are vital tools for the modern treasurer. You need these to earn the trust of your internal stakeholders and ensure that they feel comfortable with the advice and solutions that you are providing them.”
“The nature of a club loan means that we act as the syndication agent,” he explains. “I therefore had to approach the different banks that we wanted involved in the deal to ask them to provide funding.” Of course, with credit conditions as they are, banks are not as readily able (or willing) to part with their cash. Consequently, Ng had to put the work in and communicate clearly the strategy of the company and the nature of the deal. “It was important to ensure they understood that by being part of the deal, that they would be one of our preferred banking partners moving forward.”
Of course, communicating with other financial professionals, namely the banks, has been a requirement for treasury since the dawn of the profession. However, the need to outline, often complex, treasury matters to non-financial professionals requires corporate treasurers in 2016 to have a different set of skills.
“Soft skills, such as the ability to effectively communicate, are vital tools for the modern treasurer,” Ng says. “You need these to earn the trust of your internal stakeholders and ensure that they feel comfortable with the advice and solutions that you are providing them. Increasingly, the same can be said for external stakeholders as well, because you need the banks to trust your operations so they will feel comfortable to provide funding. These skills are not necessarily inherent for a treasurer however, and from my experience have to be learnt and built upon throughout your career.”
What Ng is touching upon here is just one part of the broader change that corporate treasury has undergone post-crisis, which has seen the role expand and become more strategically important. Indeed, even within his own company, Ng has seen a significant change. “Treasury is now heavily involved in many C-level conversations; this wasn’t typical pre-crisis,” he says.
In his view, even before the crisis treasury was seen as an important function, but there was perhaps a lack of understanding within the business about the risks the department was exposed to. “After all, the departments chief counterparty is the banks, who before 2008 were seen as being quite safe,” he says. “As a result, treasury largely operated in the background with little C-level focus. It was apparent that everything changed from the onset of the crisis, however.
“As soon as events began to unfold, everybody within the organisation honed in on treasury and started to pay a greater interest in what we were doing,” he adds. “The questions were largely around our banking relationships and the number of banks that we should be working with. And it was agreed, by both C-Suite and treasury, that we should diversify our counterparty risk more and as a result began looking to work with more banks.”
From this moment in time the profession changed, perhaps forever. C-level interest in the function hasn’t abated and treasury has a more strategic role to play in the company, assuming the position as a trusted advisor to the board. Moreover, Ng has seen treasury increasingly become more cross-functional as the role has grown in complexity. “Ultimately, the financial crisis has fundamentally changed the role of the treasurer, making it more visible and crucial to the success of the organisation,” concludes Ng.
A volatile environment
It has not just been counterparty risk management that has tested corporate treasurers in the wake of the financial crisis, however. Rather than levelling out and returning to prosperity, global markets, on the whole, have become increasingly volatile. And with retail operations spread out around the world, using different currencies, FX volatility has been a particular focus for the Ng of late.
“We have consciously begun to take a more active approach to managing our FX risk exposure,” he says. Historically, the DFS treasury, which centralises cash at corporate level in USD, were able to carry out wholesale FX transactions and then provide these funds to the local procurement teams when required.
However, the recent volatility has rendered this approach obsolete. Ng and his team now split these large trades into smaller numbers – a $5m currency swap, will now be conducted as five individual $1m currency swaps. “This ensures that we are able to achieve the best pricing and it also enables us to manage our exposures more carefully.” But as the number of transactions increased, so did the work load on the treasury team.
“As a result of this, we have worked hard in recent years to automate our FX processes,” explains Ng. After scouring the market for different solutions, the company decided to leverage Thomson Reuters FXall to do this. “Before beginning to use the solution I would need to call the banks to put in the trade, they would then call me back and settle the deal. Fund transfer would also need to be made manually after this was complete. This was fraught with risk and delays could often occur if I was in a meeting or unable to make the call.”
With the automated solution, Ng is able to input a large number of trades in the system and achieve the best price. Additionally, settlement and deal completion is completed automatically. “We have also programmed the system so that once the deal is settled it creates a payment instruction, meaning that there is no need to manually make the fund transfer either. This has enabled us to plan our deals in advance and leave them to run with little to no human intervention, removing a large degree of the risk and ensuring that our time can be spent on more value-add activities.”
A curious nature
Examples such as this, where Ng is willing to explore new technology and processes in order to guarantee treasury is able to deliver on its objectives is something that he believes is crucial to the continued development and effectiveness of the function. Indeed, being curious and exploring new ways of doing things is one of the DFS Group’s core beliefs and is actively encouraged across the organisation. But in treasury this is especially important as Ng is acutely aware that technology is transforming the profession and believes that it is vital that treasury stays abreast of and embraces these changes.
Of course, it is well understood that innovation typically occurs first in the consumer space, before permeating into the corporate space. So whilst corporate treasury departments around the world arguably haven’t yet felt the full force of the disruption that is currently occurring in the financial services industry, those treasurers working in the retail space are on the front line, particularly in respect to payments. “In China, consumers want to use Alipay to make payments, we spoke to our businesses in China and worked to ensure that they were able to accept this form of payment. We are now exploring the possibility of also accepting payments over WeChat (a popular Chinese messaging app).”
Adoption of this technology makes sense for the business; it should drive more sales and make it easier for customers to pay. And whilst Ng is curious of new technology, DFS will not adopt something unless it makes business sense. “When evaluating any new technology there is a need to ask some fundamental questions, such as, will it lower our costs? Will it help drive efficiencies? Will it enable the business to perform better? If the answer is yes, then we will investigate it a bit further.”
Looking ahead, Ng doesn’t see the proliferation of technology and the changes it is forcing abating any time soon. Indeed, he holds the belief that these changes may only become more acute. “At present, we are very comfortable leveraging the offerings of banks and established technology companies,” he explains. “But this may change in the future as the current wave of fintech companies and their products mature. It is fully plausible that in the near future a technology company could handle our cash management business. Whether this occurs in reality remains to be seen, however.”
Acting with humanity
For the modern treasury professional, carrying out all the ‘traditional’ treasury duties, acting as a strategic partner to the business, and keeping one eye on future developments, not only in the markets but also across the technology space, can be a demanding task. Spare time is therefore a precious commodity. It is admirable then that Ng donates some of his precious spare time to a good cause, keeping in line with the DFS Group’s belief of ‘acting with humanity’.
Hand in Hand for Haiti is a charity that was set up following the devastating earthquake that hit the country in January 2010. Its objective is to build a sustainable school complex for the neediest children of the city of Saint Marc. “Our then CEO was heavily involved with the project and invited me to provide accounting and treasury support to the operation. It is a fantastic initiative and one that caught the imagination and provided a wonderful opportunity to give back to those less fortunate. And even though we have had a change in CEO who helped launch the project, I still provide support for the organisation today.”
It has certainly been an interesting and exciting journey in treasury thus far for Ng. But despite the challenges, his enthusiasm and passion for the role has not abated and he is ready for more. When asked what the future holds he said: “My focus for the coming years is to continue to expand the role of treasury in line with the ever changing needs of the business.”