Photo of Jennifer Boussuge, Bank of America Merrill Lynch with Amit Singh, Margaret McDonnell, Jennifer Cleary and Barry McKernan from Pfizer.

Treasury Today’s Top Treasury Team accolade for 2014 goes to Pfizer’s treasury teams based in New York and Dublin. Their submissions cover no less than seven key projects ranging from a supply chain financing programme in Asia to EMIR reporting and an in-house vehicle financing solution. In addition, our judges felt their submission in the Best Risk Management solution category was worthy of a Highly Commended Award in its own right.

The dedication and expertise demonstrated by members of both teams, plus the wider Pfizer organisation, is exceptional, showcasing examples of really excellent enterprise-wide teamwork and collaboration. The resulting benefits are very impressive indeed.

The New York team members recognised are Renje Kuo, Ping Chen, Freddie Koh and Carol Carino, led by Amit Singh, VP and Assistant Treasurer, for their Regional Supply Chain Finance programme in Asia Pacific.

Neil Desai, Portfolio Manager, led a team comprising Amit Singh, Mark Hopkins, Aengus Quinn, Brian Farrelly and Margaret McDonnell to develop an outstanding short-term investment solution.

Alex Zimmerman, Senior Manager, North America Treasury, plus his colleagues Fiona O’Leary, Raj Ramapatna, Paul Whelan, as well as the operational business finance lead Gordon Loh, built a new Global Cash Management solution.

Mark Hopkins, Director, Amit Singh and Neil Desai implemented an innovative FX solution.

And in Dublin, Jennifer Cleary, Compliance Manager, with key inputs from other groups within treasury, IT, front office and treasury operations, as well as the Pfizer legal team in Ireland, provided a cost-effective solution to EMIR reporting.

Susan Webb, Managing Director, led a team comprising Amit Singh, Ian O’Callaghan, Fiona O’Leary and Ivor Johnson, Szabi Kapusi and Fred Turco from the Fleet Team, to create an innovative Financing solution.

Finally, Process Re-engineering, was initially conceived and led by Margaret McDonnell, Treasury Operations Manager in the Dublin Treasury Centre, and supported by the Corporate Treasury group. Once the idea was presented to the GFS Europe Treasury Team, where the cash forecasting process sits, Fiona Caheny, Sinead Keogh, and Vikram Talwar carried out all testing and development. Talwar, with support from Treasury SMEs (Mark Cunningham and Julia Donegan) and his manager Shane O’Reilly, is currently working on completing while continuing to collaborate with McDonnell in the DTC.

The challenges and goals

Turning to each project in turn:

Supply Chain Finance:

• Improve working capital (increase DPO) without financially disrupting Pfizer’s supply chain.
• Ensure no re-classification from accounts payable to debt. If this were to happen it would defeat the purpose of the programme and also add to Pfizer’s reported leverage.
• Minimise the impact on existing regional financial shared services AP workflow and business technology footprint.

Liquidity Management/Short-Term Investing:

• Preservation of capital – ensuring that investments are of high credit quality.
• Liquidity – develop the ability to efficiently sell assets in order to raise cash at short notice.
• Yield – enhance returns on cash.

Global Cash Management:

• Institute one methodology to view bank balances globally on a daily basis.
• Standardise reporting, centralise data and implement a bank-agnostic reporting tool.
• Minimise the impact on local market finance colleagues.
• Leverage current technology footprint and control costs.

Foreign Exchange:

• Design a cash flow hedging programme to alleviate swings in Pfizer’s financials due to foreign exchange movements in key currencies: JPY, EUR, GBP, CAD and AUD.

EMIR:

• This was not a typical innovative solution designed to optimise or enhance current processes. Rather it was the solution put in place to respond to a regulatory reform enacted during 2012 involving a series of ‘milestones’ to be delivered over future months.

Financing:

• Utilise Pfizer’s cash to eliminate the third-party finance cost of leasing.

Process Re-engineering:

• Address a series of long-standing, highly manual processes associated with Pfizer’s substantial daily cash movements.

The solutions

In April 2014, Pfizer introduced to its vendors a Singapore-based supply chain finance programme with J.P. Morgan. This programme offers a rare ‘win-win’ solution for both parties. The Singapore pilot, once successful in engaging vendors in Asia, will be extended to Pfizer’s vendors across the rest of the world.

Pfizer’s treasury recently launched a solution to enhance yields on its short-term cash investments while maintaining the portfolio’s highquality risk profile. The solution involved exploring two alternative investment strategies, both of which were managed in-house:

• Basis swap strategy.
• Structured products strategy.

Pfizer operates in many markets around the world, with over 500 bank accounts across more than 75 counterparty banks. Roughly 95% of Pfizer’s balance sheet cash is visible daily to the corporate treasury. The remaining 5% of cash is either regionally or locally managed.

Given this geographic disparity, Pfizer’s treasury was tasked to build a global bank balance reporting infrastructure that is scalable while leveraging in-house technology. The benefits would shift the regional and decentralised oversight of cash to one global report, strengthen counterparty bank risk management, reduce manual intervention, and provide timely information and decision support for global cash management. SWIFTnet technology was selected as the global standardised interface with banks while utilising SunGard’s AvantGard Quantum to retain and report on the information.

Chart 1: SCF programme structure

A supply chain finance programme helps reduce the overall cost to the supply chain by providing a cost-efficient financing option to suppliers

Source: Pfizer

Pfizer’s FX solution hedges currency exposures by using foreign exchange forward contracts of up to 24 months in tenor. In addition, these exposures are layered over this period, achieving a smoother exchange rate and thus reducing overall volatility in Pfizer’s income statement. The programme went live with JPY hedges in April 2014. Following this it will add the other four currencies as it tweaks and improves its monthly processes.

Pfizer partnered with 16 bank counterparties for EMIR reporting which provided a cost-effective solution. These partnerships allowed Pfizer to avail of their systems, expertise and experience whilst ensuring EMIR compliance for third-party trade reporting at zero cost.

The aim of the financing project was to establish an internal fleet-leasing hub to finance Pfizer’s purchase of vehicles and unwind the existing close-end lease arrangements currently in place.

Pfizer is cash-rich with a significant investment portfolio. Earning a reasonable return on this portfolio in the current low-interest rate environment is challenging.

Pfizer has a large field sales force and operates a car fleet of 27,000+ globally, with approximately 13,000 vehicles in Europe. The majority of these vehicles in Europe are operated under a closed-end lease model whereby Pfizer pays a monthly amount to a third-party leasing company for all services relating to the vehicle. Interest paid to third parties in EMEA under this model is in excess of $10m per annum.

The solution is a leasing ‘hub’ which uses Pfizer’s own cash to finance its own car fleet, eliminating interest costs and unlocking the closed-end model. The project included a number of pilot markets (the UK, France, Spain and Italy) but could ultimately be extended to the rest of Europe and the US.

Pfizer has implemented a zero-balancing cash pool arrangement across Europe, whereby it invests the cash swept to its header account in London on a daily basis. The amounts are significant, and can vary between (equivalent) $20m and $150m daily.

Pfizer’s primary financial shared services centre for Europe, known as ‘Global Financial Solutions-Europe’ (GFSE), supports 16 European markets, and the GFSE treasury team is responsible for collating a daily forecast on their behalf for approximately 65 European entities, in up to 26 currencies. This involved a labour-intensive, manual process, which took four hours daily and achieved only 60% accuracy.

Chart 2: Technology systems schematic

Source: Pfizer

Pfizer wanted a smarter solution, which would achieve more accuracy while saving resources. The company leveraged technology which was already available to it, and found that using intraday bank statements as its source of information achieved this and added-value.

This process re-engineering solution replaces the manual import of ‘expected’ payables and receivables from its ERP systems, with an automated import of ‘actual’ payments and receipts from its intraday bank statements. This will be done through the import of account balances at a point of the day when over 98% of all payments and receipts have been applied.

Pfizer is an exception to the rule. These initiatives are cross-functional efforts spanning multiple business functions spread across the globe and time zones. Navigating through everyone’s timelines and agenda must have been hugely challenging but the end results make it all worthwhile. Our judging panel was immensely impressed with the projects undertaken and the Pfizer teams in Dublin and New York can be rightly proud of what they have achieved. Congratulations from the team here at Treasury Today.

Richard Parkinson, Managing Director, Treasury Today