Perspectives

Corporate View: Andrew Langham, InBev

Published: Apr 2010

Headquartered in Belgium, Anheuser Busch InBev (AB InBev) – formed from the merger of Anheuser Busch and InBev in November 2008 – is the number one global brewer and the world’s third largest consumer goods company. InBev UK is the Luton-based arm of Anheuser-Busch InBev. This month, we speak to Andrew Langham, Cash Flow and Risk Manager about the challenges of off-shoring and managing risk in a changing environment.

Andrew Langham

Cash Flow and Risk Manager

Andrew Langham started his career at Midland Bank which then became HSBC, working in branch management, business centres and in credit teams at a regional level for 24 years. Mr Langham then joined Whitbread Beer Company as loans manager working in the finance department. He moved over to treasury when the company was taken over by Interbrew (now AB InBev). He has management experience in cash management, payables, receivables, and cash flow forecasting. He has been with InBev for eleven years.

How is the treasury structured at InBev UK?

InBev’s treasury is structured centrally and most European operations are undertaken at the treasury centre in Leuven, Belgium. I am based in Luton, just outside London, and my team effectively provides an information reporting service; we supply information for cash flow forecasting, and for necessary foreign exchange deals. However, we don’t actually do the forex deals anymore as they are done in Luxembourg, after they have netted out other subsidiaries positions from around the world.

The internal trades are booked through a subsidiary of the parent company in Luxembourg. We then receive a report on these and make the necessary entries across our accounting systems. We also do the reporting and entries for commodity hedges, but we don’t get involved in forecasting the requirements, this is carried out by procurement and our PPM (a management accountant who is linked to the brewery). They do the forecast on commodities such as aluminium, by converting the cans we need into tonnes of aluminium.

Borrowing is now all done by a team in Leuven who also manage debt globally. At the moment, our global group debt is quite substantial after we bought Anheuser-Busch in the US. The company has however recently finished refinancing that debt. My team didn’t get involved in that side of things, which is a pity, but as more and more of the treasury is centralised to a large extent we just provide information, record data and make sure the relevant entries are passed, as required for statutory accounting.

What are the biggest issues you face in your job today?

The toughest challenge we have is meeting the cash flow target. This is difficult because it is a large business and not everyone sees cash flow as being important. Generally speaking there are an awful lot of people who do not entirely realise that they need to follow the laid down procedures that the company has. If procedures were followed correctly, the information would flow much better.

Elsewhere, we’ve also moved in the last two years to off-shoring a number of back office processes which, whilst in the grand scheme of things works reasonably well, it does still cause some issues. Payments are now based in Budapest, whilst receivables operate out of Prague. The problem is that in these offshore centres there is often an assumption that invoices etc are being processed, when in fact that is not always the case. When a supplier calls up demanding their money you have to make an immediate payment, which of course ruins the carefully forecasted cash flow.

When it was under my remit in UK, we would look at the payment run and if the amount varied from the forecast, we would then ascertain which invoices were missing and get them processed before we did the payments. If we forecast that payments out will total £5m, but we see that only £3.5m has been paid we have to work out who we normally pay £1.5m to, find them and then get the payment released where necessary. Now that everything is offshore and out of immediate control, even if I did spot a difference, I couldn’t chase these offshore operations staff up and say ‘you should be processing these invoices because they are due today.’

Before these operations were taken offshore, we would normally have checked a week in advance that the invoices were ready in time for the payment run. That doesn’t happen anymore, despite the fact that we ask the processing centres to check payments to the top 50 suppliers on a monthly basis. I think that this is a result of a disconnect between a remote processing centre and the business. There isn’t the level of ownership by remote workers; I guess this attitude will change over time: as these people work for the company longer they will see how important these processes are.

How has your job changed since you first started?

Today, all cash is concentrated in an account in the Netherlands. We zero balance all of our bank accounts every day to a general pooling account there, whereas previously we would manage our own borrowing and any surplus cash we had. We used to have more control over our facilities and even negotiated them with the banks. That is the major difference, and it’s by no means a bad thing to centralise these processes. In fact, I worked on the project to do it and was pleased to have my recommendations taken on board.

I think that from the company’s point of view, having entities, certainly in Europe, pool cash into an account in the Netherlands is a good idea. It gives the company better access to overall funds, and makes sure subsidiaries aren’t holding on to cash they don’t need, that the parent could make better use of. It does mean that there is less for me to manage, and one of the downsides is that, looking at my role, it is not as hands-on and inevitably, over time it will disappear. As such, over the last 19 months, my role has been expanded to encompass non-treasury requirements because the time I spend on pure treasury requirements has been reduced

Can you explain how the off-shoring was achieved?

The company decided which functions it could offshore and my role was to work on the project to detail the process mapping, recommend what should be moved and ensuring the personnel were trained appropriately. That was across six countries in Europe. In an ideal world, it would have been nice to see more existing staff from the finance team moved to the service centres, because they have more experience as to how the brewery business works and that would have been beneficial. However, it is not always that straightforward. An important message to take away from the off-shoring project though is that staff experience is key. This is particularly true at middle management level, where personnel know and understand what the business units require. They can use this knowledge and cascade it down to better motivate staff who then perform better.

Has the financial crisis changed the way you approach your bank relationships?

The relationships we have with the banks have definitely been a factor through the crisis; some institutions have been easier to work with than others. On a global basis, where the negotiations were taken out of our hands, the relationship manager for one of the big banks was very happy to let us get on with what we needed to do. However one of the bank’s local business units refused to work on those terms agreed by their global parent, which was something that InBev had never seen before.

Overall, banking is all about maintaining good relationships especially at a local level. I can understand after speaking some of my peers why they have had problems with their banks but I have to say that generally speaking the banks have been very co-operative with us, locally. On a global level the banks may have been a little harder to work with, simply due to the large amount of money that we borrow, but we managed to refinance, so must have done something right!

How do you approach different types of risks? Do you consider things like weather risk?

We only really take weather risk into consideration for outside events, and since we stopped sponsoring the Stella Tennis Tournament at Queens, we stopped taking out weather insurance. We do however pay for weather forecasting, so that if there is a heat wave we have plenty of beer in stock. Beer has a reasonable shelf life, and if needs be it can simply be stored. Our more pressing risks are in commodity prices, and we hedge against these.

I think credit risk with our customers is however the biggest risk to the company as we supply to most of customers on credit. We don’t insure against it but we take a view on counterparty risk on an individual basis. At the moment, with about 40 pubs a week closing we take a very close look at our independent customers’ financing. We keep a close eye on the length of credit terms and at the moment; compared to two years’ ago we like to receive it earlier. We don’t want to give long-term credit to unproven customers.

How do you approach cash flow forecasting?

We take the annual budget that somebody has kindly produced for us and we then overlay the total receivables and the total payables that we expect from the annual budget and use the percentages to work out a forecast on a day-by-day basis for the whole of the next 12 months.

This gives us a reasonably accurate overview of where we are against a new budget and what we are expecting to receive and pay out on a particular basis. That helps us work out whether or not the bank facilities we’ve got are going to be anywhere near sufficient, or if in fact they could be reduced if we’ve had a particularly good year. So that effectively gives us a long-term forecast, and we can do this for year two, year three and year four if we are given a long-term plan as we can use the same formulas.

We can access information from our receivables system on a weekly basis, but the business now requires us to do a four-weekly rolling forecast which our accuracy is then measured against. We do four forecasts, one four weeks in advance, one three weeks in advance, one two weeks and one for the next week. And we’re targeted against our dispersion against those numbers. So each week has a dispersion number.

We take the receivables from our receivables system, which will give us by customer and by payment method a breakdown of what the receivables system says we are due to expect on any given day. That is obviously more accurate than the long-term forecast because we’ve actually sold the beer by that stage.

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