When Christof Nelischer joined S4 Capital Group as Group Treasurer in June 2022 (the first time the company had appointed a treasurer since it was established more than four years earlier after having grown into a billion-pound business) he found a nascent Treasury function.

The company had no treasury-specific technology – no TMS, no electronic dealing platform, and no netting capability. Having chosen GTreasury Netting as its intercompany netting solution, Nelischer set about implementing the company’s netting programme with an emphasis on speed and follow-through.

“The strategy established our small but nimble treasury team as the business partner within the organisation that handles all treasury activity,” he says. “Keeping system access within treasury only in the first iteration eliminated the significant time and cost overhead that organisations usually expend on rolling out any new system through personnel training, managing user access, etc.”

The team worked with S4’s divisional controllers, who had no previous experience with netting systems, to establish the process for providing intercompany netting information using the upload template format. Within two days those controllers had prepared a data upload, converted to the desired format via a spreadsheet-based tool, that was then uploaded into the netting solution.

“To test the validity of this initial experiment we treated the resulting netting statements as if they were manually created and conducted a manual reconciliation process to check the system’s work,” says Nelischer. “Virtually no errors were found so divisional management signed off on the statements.”

S4 Capital Group’s Group Treasurer refers to a uniquely pragmatic and streamlined strategy whereby the company skipped every aspect of project and institutional overhead in the first iteration that would have slowed it down.

The netting programme alone leads to the natural elimination of a high proportion of intercompany FX positions, which accounts for the bulk of its operational FX exposure. The net FX position is then traded out to the market by treasury using an electronic dealing platform.

In terms of risk management, the netting cycle makes for discipline in managing positions and reduces risk by shortening and streamlining the process cycle.

According to Nelischer, the cost efficiencies of eliminating FX dealing and consolidating FX more than cover the cost of the technology.

“The economics are a no-brainer,” he says. “Even if we had changed our mind and pursued a different technology after our first successful runs with netting, we would have been ahead on money and have paid for the education of introducing a programme. It was worth it to spend the money and make progress on implementation very quickly.”

Even with conservative estimates, S4 Capital Group reckons intercompany netting delivers savings of £1m per year.

“While the manual work of performing intercompany netting without technology assistance was not fully done here, the impact of our current treasury automation would have been transformative for the workload,” adds Nelischer. “If you look at that workload in relation to the volume of data being processed, controlled, managed and reconciled, shifting from manual to automatic would mean major savings.”

Daniel Cugni, Managing Director of GTreasury Netting notes that intercompany netting typically reduces companies’ transaction costs by up to 70%. “They also save on the spread paid to banks because FX trading is no longer done at the subsidiary level,” he adds. “Non-matched FX is aggregated to larger volumes and dealt at better rates by the treasury centre.”

Then there are non-financial benefits such as improved communication between entities for matching or disputing invoices and better visibility over future flows, which allows for better management of cash flows and credit lines and feeds into other areas such as cash flow hedging. Additionally, intercompany netting simplifies monthly reconciliation processes.