Photo of Arn Knol, Zanders, Philip Stewart, British American Tobacco and Paul Greenhalgh, Deutsche Bank.

British American Tobacco partnered with Deutsche Bank and Zanders to undertake a global treasury centralisation and bank integration project to achieve centralised liquidity, payables and receivables. Critical to the success were the use of POBO and COBO techniques and the bank’s virtual account and virtual IBAN solutions with a central treasury vehicle acting as agent.

Virtual accounts: unlocking the true OBO potential

The challenge

BAT recently completed the deployment of project ‘TaO’ across all markets within the group. TaO was designed to increase efficiency and improve productivity, thereby releasing cash to invest in growth – underpinning BAT’s global strategy with its strategic pillars of productivity and growth. TaO’s key components are:

• The Target Operating Model (TOM) – bringing a simpler global business structure, common ways of working, shared and focused resources, integrated processes and a single source of data.
• Global SAP Template – enabling the TOM to work effectively by joining up systems, processes and information.

TaO was the enabler to migrate more processes to the financial shared service centre and for the operation of a more centralised Treasury function, resulting in greater visibility and control over the group’s cash/FX exposures. BAT sought to build on TaO’s foundations, leveraging cutting-edge banking solutions to harness the full power of the centralised structure. The company decided that the logical next step was to extend the IHB to accommodate third-party payments and receipts.

The solution

BAT partnered with Deutsche Bank and Zanders to undertake a global treasury centralisation and bank integration project to achieve centralised liquidity, payables and receivables. While the core premise of the project was straightforward, the scale of this project was unprecedented, providing real-time, granular visibility and reporting that revolutionised end-to-end treasury operations and supply chain processes. Critical to the success of this initiative were the use of on-behalf-of (POBO and COBO) techniques and the bank’s virtual account and virtual IBAN solutions with a central treasury vehicle (BAT International Finance plc) acting as agent.

Best practice and innovation

The project spanned Asia and Europe, with a different structure for each region to best suit BAT’s differing customer distribution models. In both regions, physical bank accounts were replaced by virtual accounts with capabilities for real-time visibility and reporting, and bank statements engineered to dovetail with BAT’s SAP in-house cash solution with sweeping through London and Singapore.

Winning an Adam Smith award is great recognition for the collaborative effort of the truly cross functional team involved in delivering the project over the last two years. We are very proud of what was achieved so to be recognised by the industry is immensely satisfying.

As Philip Stewart, Global Head of Cash & Banking explains, “We are one of the first corporations to introduce OBO techniques in some markets in which we operate, particularly for COBO.”

Stewart concludes, “This took a ‘leap of faith’ in many respects, and the value of support from our service providers in terms of advice and expertise, the quality of solutions, integration and STP capabilities, and footprint across our key markets cannot be underestimated.”

Key benefits

• Banks and bank accounts reduced:
  • Over 600 accounts closed, reduction in account maintenance, transaction costs and FX fees – £1.85m per annum.
• Increased STP/STR levels.
• OBO model is flexible enabling expansion into other markets.
• Substantial cost savings.
• Process/operational efficiencies – £150k per annum.

Key learning points

The key learnings were to align on scope, objectives and any tax/legal implications at the outset whilst not underestimating the change management involved. Early communication and stakeholder buy-in was essential to ensure we met our aggressive deployment timelines. In addition, the banks virtual account offerings are at different stages of maturity with not all able to support our preferred model. It is important that the banks have the necessary adaptability to bespoke solutions to meet technical/operational requirements and ensure consistency across multiple geographies.