Photo of Raj Melvani, Thomson Reuters and Kenneth Ng, DFS Group.
Kenneth C. K. Ng
Director & Corporate Treasurer
DFS is the world’s leading luxury travel retailer, offering products across five pillars of luxury: fashion and accessories, beauty and fragrances, watches and jewellery, wines and spirits, and food and gifts. DFS operates across three continents and employs more than 9,000.
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How one company uses benchmarking to drive change in its business
Most companies want to know their exact financial position in order to make well-informed decisions. DFS is no exception so they have identified some metrics to benchmark their performance against a number of key performance indicators (KPIs) in the areas of FX, funding and investments. The company has worked with Thomson Reuters to implement these benchmark metrics, providing a great example of what is possible with the right systems in place.
The challenge:
With operations spanning 11 countries around the world it is of course crucial for DFS Group to know the exact financial position of the company, in order for it to be able to plan its next move. It is equally important to constantly improve operational efficiency, costs and performance through benchmarking.
Benchmarking however can come in many forms, both internal and external. The challenge therefore for the DFS Group was to devise a strategy and use tools which would not only allow them to effectively benchmark their performance in a number of areas – most notably FX, funding and investments and also internal performance evaluation – but to be able to take away this information and drive change through the business.
The solution:
Having scoured the market, talked to their peers and analysed numerous solutions and methods, the DFS treasury team decided to leverage the capabilities offered by a financial markets information provider. On the FX side DFS adopted FXall IQ to benchmark available FX rates. This has enabled treasury to effectively monitor and track the best rates in the market allowing it to obtain prices above market average at least 90% of the time. Given the automated nature of the platform, the solution allows them to save time and effort in both FX execution and around auditing by providing an audit trail that complies with all internal requirements.
It’s a great honour for us to win the Adam Smith Asia Award. We thank you so much for recognising that the treasury practices we have developed and adopted are among the best in the industry. We would also like to take this opportunity to thank our business partners and bankers for the great support they have given to us – they are indeed part of our team.
On the funding and investment side the treasury team set a number of key performance indicators (KPIs). For instance, term deposit rates should be better than the USD deposit rates with the same tenor quoted in Reuters on the day of term-deposit fixing. Also the MMF yield is benchmarked with the USD overnight deposit rate to ensure funding and investment decisions are done in the best interests of the company. DFS gets indicative quotes from the money markets as well as real-time pricing on time deposits and short term loans. This has allowed the treasury team to accurately gauge market direction and make informed decisions.
Together these solutions have afforded DFS the opportunity to confidently handle end of day derivatives revaluation by benchmarking against internal departments such as accounting and external providers such as banks. The team is also able to accurately and confidently report on accounting and P&L to management, as well as benchmark themselves against the market and competitors.
Best practice and innovation:
DFS’ primary platform for market neutral benchmarking across key aspects of treasury management activities has provided unparalleled insights in the markets. This enables DFS to consistently perform across a number of key areas, all of which has allowed the treasury to be confident in its major decisions.
“DFS is constantly audited by internal partners and we need to prove we have the tools and capabilities to get the best deal in the market. That is our main KPI. By using these tools we save costs and time as well complying with audit requirements.”
This has afforded treasury the opportunity to aggregate FX prices and optimise transaction execution in a more timely way. As a result it is saving time and money by having the best prices available directly on screen – with no need to call banks any more.
For funding and investments treasury is now able to access information on peer deals across syndicated loans and corporate debt markets. As Kenneth Ng, Director & Corporate Treasurer, concludes “we have a view on where the market is going and an understanding on how we can position ourselves to better negotiate long-term funding with our dealer banks.”
Key benefits:
Cost savings.
Productivity gains.
Process efficiencies.
FX gains.
Compliance with audit requirements.
Better decision-making.
Improved transaction execution.
Key learning points:
To set a good benchmark, we needed to keep our ears and eyes open for the ever-changing regulatory environment, business conditions and evolution of technology. It’s also important to learn how treasury peers address business issues. From this, for example, we know that in addition to obtaining a quote from at least three different banks for our forex trading, we also must benchmark the market average to ensure that the prices quoted are close to the market price.
The Adam Smith Awards Asia is the industry benchmark for best practice and innovation in corporate treasury. To find out more please visit treasurytoday.com/adam-smith-awards-asia
