Implementing risk management solutions from the ground up

The challenge

Takeda Pharmaceuticals was facing some complex FX risk management challenges. The company hadn’t kept pace with cutting edge treasury infrastructure – and consequently, most of Takeda’s treasury efforts were spent on time-intensive activities that had a high chance of manual error and lack of risk transparency. As a result, following the 2019 acquisition of Shire, Takeda’s treasury team was not prepared for the size and complexity of the resulting treasury-related tasks.

Takeda therefore needed to implement an innovative technology solution to address these challenges. With US$30bn in combined revenues, having end-to-end cohesive automation and software supported processes was essential. This would not only improve strategic decision-making, but also decrease the risk of errors, increase staff productivity, allow the team to focus on process improvements, and reduce operational costs.

The solution

Led by Urs Berger, Assistant Treasurer Financial Risk Management, the new Takeda treasury risk management team selected solutions from currency management platform AtlasFX, treasury workstation provider Kyriba, and trading platform provider FXall.

For the balance sheet FX hedging programme, the aim was to automate the entire hedging process, including gathering global FX exposure data from ERP systems using SFTP uploads. Data needed to move seamlessly between multiple systems, with minimal need for manual intervention.

With the new solutions in place, once exposure balances are collected, AtlasFX analyses the FX exposure to determine which external hedges to execute. The team then executes the hedges using FXall as the trading platform and houses the hedges in Kyriba as the treasury workstation.

The automated and connected platforms centralise FX management and facilitate automatic data collection, exposure calculations, hedge recommendations and roll of hedges at maturity. Additionally, the system is able to analyse the impact of FX hedges on the P&L and revalue the underlying balance sheet FX exposure.

Best practice and innovation

The resulting solution is highly customisable. Takeda’s treasury team can adjust AtlasFX’s configuration in order to create full visibility into individual entities. The decision module recommends hedge actions based on the company’s corporate policy. It also generates trades netted at the corporate level for all exposure balances of Takeda Group exceeding the minimum desired threshold.

With this project, Takeda’s treasury risk management team has achieved transparency and consolidation of its balance sheet FX exposure and almost 100% automation for balance sheet hedging. Manual interaction with data has been significantly reduced, thereby eliminating nearly all risk of manual errors.

The team has also streamlined the management of thousands of hedges by having centrally-located trades, all with a single, monthly maturity date. The system does the heavy lifting by rolling them to the next maturity date. This emerging process is scalable, making it easy to bolt on the data from new hedging entities or add new currency pairs.

Key benefits

The new workflow has significantly reduced currency risk. Since implementation, balance sheet net losses have been held to less than 50% annually, compared to pre-implementation.

There were also benefits to trading costs, with Takeda reducing its trading fees by a significant one-digit USD million figure in the past year with the new trading platforms. By streamlining and standardising the entire FX risk management process from data collection to exposure analysis and centralising FX hedging into one global programme, the risk of error has been reduced. There have also been significant time savings and process improvements that allow for faster data error identification.

The month-end analysis provided by the platforms has enabled the treasury team to go beyond hedging as the primary FX risk mitigation tool. The team is now able to take steps to identify and sometimes eliminate the root cause of the risk and the need to hedge. Treasury risk management team helped design and implement the process of the new programme themselves, allowing Takeda to greatly increase the size of its balance sheet. The company now has visibility into and manages over 45 currency pairs. It has reduced its hedging threshold to capture and hedge more of its corporate exposures, bringing the earnings per share (EPS) impact of balance sheet exposures to below US$0.05.

The new risk management solution is a technological makeover of significant magnitude done by Takeda’s treasury risk team in a condensed period of 12 months. Having achieved this step during the largest integration of Takeda Group makes it even more remarkable.

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