Annette Owen discusses the centralisation of BAT’s cash management structure and the challenges the adoption of new technology provide.

Where does global cash and banking fit within group treasury?

I joined BAT in June 2001, a few months after David Swann was appointed to the role of Group Treasurer. He decided that treasury was going to focus on transactional cash management, with a much larger emphasis on centralising cash. That is why my role, Global Cash and Banking Manager, was created.

Previously most of the focus in the BAT treasury department had been on the debt and capital markets side. This changed with the focus with regards to what constitutes treasury in BAT. Group treasury is now structured in four key streams:

• Corporate finance, which includes debt and capital markets.
• Global risk management.
• Transactional execution, which incorporates the treasury shared service centres.
• Global cash and banking.

The central treasury department is responsible for establishing the policy and strategy and for setting targets and best practice for the group.

We then have regional treasurers based in our four territories:

• Europe
• Asia-Pacific
• The Americas and Africa
• The Middle East.

Their role is to ensure that the policy is driven forward in their respective territory.

This structure has been established in the last three years. We started by setting up the European treasury centre in 2001. This was the first step in the process of centralisation. This enabled us to remove the money market and foreign exchange dealing from the local operating companies. My first task when I arrived was to establish banking infrastructures to make this a much more efficient operation. This included a re-examination of the banking services which were in place. The natural outcome was to issue Requests for Proposals (RFP) to a number of banks. The result was a complete change in cash management banks providing treasury settlement accounts, European overlay accounts and internet delivery channel.

Over the next twelve to eighteen months, there was a settling down period when we focussed on implementation. This included the need to migrate from the incumbent system and banks in a controlled manner.

What are you doing now?

The next phase in the treasury vision was to focus on the Asia-Pacific region and to establish a second treasury service centre there. We had to work hard to get the buy-in to the project from the operating companies in the region. The regional treasurer invested a lot of time visiting all the finance teams within the local operating companies from Sydney to Sri Lanka. By the end of 2003 we had decided to establish the treasury service centre (TSC) in Singapore and were then in a position to select a banking partner to provide the infrastructure to support it.

We decided to issue an RFP to identify a banking solution which would allow us to achieve this. We needed to ensure the bank’s delivery channel would be easy to integrate with our treasury system. As a result of the RFP, we selected Citibank to provide the solution. They provide the banking infrastructure for both the foreign currency accounts in Singapore and the cross-border sweep into London.

At present, surpluses in the indigenous currencies from the countries where centralisation is easier are deposited with the TSC in Singapore by the operating company. These surpluses are then swapped into dollars by the TSC dealers. The dollars are deposited in an account which is automatically swept back to our account with Citibank London.

The regional treasurer, who is based in Singapore, acts as a local advisor to the operating companies in the region and as manager of the TSC. Although it is a small operation at the moment, it is central to our structure, as it provides us with the network to concentrate cash.

Was it difficult to determine which bank could deliver the best service?

In Asia, we were looking for a bank which, as well as being able to work with the easy-to-do countries, could show a real understanding of the challenges we face in achieving our goals in the more regulated countries. If they could help us here, we would attain the biggest benefit.

Technology was also important. We had taken a big step forward in Europe when we decided to adopt Internet banking. This required us to interface that to our treasury system. In Asia, we wanted to forge a real partnership with the selected bank and also to leverage the lessons we had learnt from building those interfaces in Europe over the last couple of years.

We were quite open-minded on the solution. However, the structure we adopted did mean that local banking remains with local banks.

Was that a conscious decision?

We weren’t actually tendering that piece of business. Having said that, we already have a small hub of countries where the accounts payable function has been concentrated and is settled through one bank in Asia.

As a company, you operate in 180 different countries. How do you get the information to ensure you work in the most tax efficient way?

Our tax department is very well-resourced and we work hand in hand with them. We even sit on the same floor! Their structure mirrors treasury with a core central team and individual specialists for each region.

We have discussed the selection of the overlay bank. Do you have any say in the bank which the operating companies use in each country?

We have a core group of twenty-three banks which are all part of our syndication. We try to ensure that business is shared around this group. If any of these banks are able to provide a service to a local operating company, we ensure that they are given an opportunity to bid. This is an area where the group approach has become much more coordinated over recent years.

As part of this, we ask the banks to provide us with their evaluation of our global relationship. It is surprising the number which struggle to get that information together. Others do provide the information, which helps us to understand where the value is in the relationship. The analysis helps us to understand the banks’ appetite for business. Ultimately, we are looking for a set of relationships which will provide value for both parties.

Increasingly, the local operating companies are using us as a centre of excellence. We can provide them with information and advice on a number of areas, including systems and interfaces as well as pricing.

How do you maintain contact with the operating companies?

In Europe, this was a key part of the success of the centralisation process. We went out to see the FD, treasury representative or cash manager in the major operating companies individually. In Asia, one of the main roles of the regional treasurer is to maintain direct contact with the operating companies in what is a large region.

We try to hold a tax and treasury workshop on a regional basis once a year. Indeed, it was during our workshop in Kuala Lumpur, three years ago, that we introduced the concept of the four treasury streams and the roll-out of the treasury centre to finance representatives from the Operating Companies.

When adopting new technology, at what point is it your responsibility to ensure it works?

This has been a huge change for us. We took the decision to Internet-enable the treasury at the end of 2001. For the first time, treasury had to consider central IT support. The operating companies participating in the Euro overlay structure needed to have CitiDirect. We acted as the centre of expertise and advised the operating companies how to set this up.

We have been re-evaluating the way we use technology. The treasury management system we inherited had been adequate for our requirements. However, the implementation of treasury service centres has expanded the geographies which need to be covered and the volume of transactions has increased significantly. We are now at the stage where we are considering the next generation of technology, particularly the Internet, and how it might help us achieve our objectives.

From a management point of view, I think it is important we, in treasury, take the opportunity to understand how the technology works and how it will be supported. We need to fully understand the critical nature of the connectivity between the various systems used by the front, middle and back office. We must not relinquish this to the IT department.

I am concerned by the lack of expertise within some software providers and banks when it comes to integrating different systems. Whilst it has become easier in recent years for suppliers to deliver and upgrade their software across the Internet, integration with the clients systems appears have become much more complicated. Lack of standardisation continues to produce confusion. In addition, building barriers to the ever present threat to data security is creating a complex environment.

Where do you go from here?

The next step is to address the Americas region. We envisage setting up a TSC in the time zone. Part of the plan will involve talking to banks, regional as well as global, who have a proven track record in the region. We have already started to talk to other multinationals regarding locations, infrastructure and service.

We have already established a dollar pool in the region; we are aiming to leverage the benefits of that and to see how we can better manage the indigenous currencies. There is much efficiency to be gained in the Americas which we have not exploited yet. Finally, we will address the Africa and Middle East territory. Whilst it is in the same time zone as the European treasury service centre, we do not anticipate being able to achieve the same success due to the nature of the markets. However we are already working with the bigger players in the region, such as South Africa, providing advice in a number of areas including pricing and the use of technology.

It is important to recognise that we have moved a long way in a very short period of time. We are also beginning to approach the time when we will need to revisit some of the structures we have put in place. European Union expansion, for example, provides us with additional opportunities.