Corporate View: Carol Power, Cable&Wireless Worldwide

Published: May 2011

With a history stretching back to the 1860s, Cable&Wireless Worldwide has long been a household name and now helps more than 6,000 organisations deliver their goals.

Carol Power

Group Treasurer

Carol joined Cable&Wireless Worldwide as Interim Treasurer in September 2009 to drive the de-merger financing for the Worldwide business and to establish a new treasury function; she became Group Treasurer of Cable&Wireless Worldwide in April 2010. She started her treasury career in 1992 at Burmah Castrol and has since worked at TI Group, ERM Holdings and Carphone Warehouse.

The company’s past has been colourful to say the least. Cable&Wireless was nationalised in the 1950s, becoming the international arm of the British Post Office and subsequently privatised in the 1980s. It offered the first competition to BT in UK telecommunications, and merged with Mercury Communications in 1993. In the early 2000s, a new Chairman was appointed and an acquisition followed.

The quest to maximise shareholder value led to a de-merger announcement in 2009 – at which point Carol Power joined the company. “I joined as an interim in September 2009, when the de-merger process was about to begin,” she explains.

The new company had no treasury function of its own as the central treasury team was to remain with the other part of the de-merged business, Cable & Wireless Communications, so it was Power’s job to establish one. At the same time as implementing policy, treasury systems and processes, and working with the existing cash and banking team – where much of the cash and working capital work took place – Power was faced with the task of recruiting a new team. “Treasury recruitment is a difficult enough task at the best of times,” says Power, “but when you are recruiting for a treasury that doesn’t yet exist, in a company that doesn’t yet exist, you reach a new level of challenge.”

Treasury recruitment is a difficult enough task at the best of times, but when you are recruiting for a treasury that doesn’t yet exist, in a company that doesn’t yet exist, you reach a new level of challenge.

Although the company has wide and varied global operations, the majority of its revenues are generated in the UK. That reflects on the treasury function, which carries out most transactions in sterling, US dollar and euro. Comments Power, “We work with the commercial teams to make sure FX risks are identified and minimised as soon as possible. That close link is typical of our treasury’s attitude – the company’s culture is very much one of understanding other functions and working with them as often as is required. We are a risk mitigation service centre.”

In this interview Carol Power discusses how she set up Cable&Wireless Worldwide’s treasury, the challenges she faced along the way and her plans for the department’s future.

What were your aims when establishing the new treasury?

I had several core aims.

Firstly, it is important to remember I was part of a larger team in the de-merger process though responsible for all treasury issues relating to Cable&Wireless Worldwide. I had to make sure we had a working treasury department ahead of the planned de-merger to stay in step with the rest of the company.

That tied in with my second aim – to make sure the rest of the business understood what treasury was, what it did and how we could help them.

Promoting treasury amongst colleagues led into a third aim – to equip the treasury function with the right tools to be flexible and scalable so it could grow as the company and department did. Establishing buy-in from senior management on that structure and those tools was key to the success of the project.

I knew I had to take a pragmatic approach to the whole project as I was working to a tight deadline; I started in September 2009, the de-merger was announced in November and completed in March 2010. This meant I had to be quick and efficient, directing the limited resources at my disposal towards covering the basic functions we needed. The structure had to be scalable for future development and I could only direct part of my time to the new treasury as I was still running those functions in the existing company as well as being absorbed in the de-merger itself.

What challenges did you face on the project?

Recruitment was definitely the biggest obstacle I encountered. The backdrop was tough – I had to recruit a treasury team for a new entity, and at the same time try to show the rest of the company what a treasury is and how it works.

The first obstacle this process hit was explaining the roles. Because treasury is a specialist function, I had to ensure the recruiters understood the exact responsibilities these roles entail.

We recruited two analysts in May 2010 and an assistant treasurer in June. Although their roles were clearly defined at the time, the systems and processes had not yet been established due to the de-merger process and that made it a very challenging environment to join. As such, we didn’t retain everyone at the first pass, but we now have a team that is beginning to settle down.

The assistant treasurer is responsible for all treasury operations, including all the cash management and treasury dealing; the two analysts report to him.

The senior analyst is responsible for the daily cash management process, FX dealing and any smaller projects we have to reinforce those processes. The more junior treasury analyst is also required to do these tasks. We are such a small team that we all need to be able to do each other’s jobs. Everybody understands what needs to be done, how it is done and when it needs to be done. If three of us cannot come in for any reason, the final team member must be able to complete all the essential tasks. The two analysts work together on day-to-day cash, liquidity management and FX dealing. The assistant treasurer oversees them and signs off controls, and leads more operational projects – like the cash management strategic review that we are currently doing, for example.

Really, it is an ‘all hands on deck’ atmosphere, and that gives everyone, particularly the analysts, experience of small projects on top of their day to day tasks which is what they need to provide them with the depth and variety of skills required to make a better treasurer.

In funding terms, you arranged quite an unusual deal for the de-merger – can you tell us more?

Before the de-merger could take place we had to have security of funds and to start off as a new plc with a strong balance sheet. We arranged a three-year £300m committed facility with our six core banks and issued a £230m convertible bond; the bond pays 5.75%, and matures in November 2014. The credit facility has not been drawn since its creation – it is there just in case we need it. The interesting bit is the bond. Because we were raising the funds before the de-merger took place, we were actually issuing a bond for a company that did not yet exist. We did not have a rating and there was clearly a lot of uncertainty surrounding the move. However, the issuance worked and the bond has traded well.

We still do not have a rating – we feel we do not need one for any of our current activities. Clearly if we were issuing another convertible bond today – structured the same way – we would expect to pay a lower coupon, as we have now existed as a standalone plc for a year and the uncertainty around de-merger has been removed.

In terms of other funding needs, we are open minded about investigating other sources of finance provided they sit within our core facility covenants and can be obtained at reasonable cost. We have looked into vendor financing, such as finance leasing, because we spend a reasonable amount on capex each year and this can be a good source of funds that matches the cashflows to the initial payback period of the assets. We have not engaged in supply chain financing however, as our main suppliers do not require us to do that, and from our point of view it would not be a particularly useful arrangement to help us generate cash.

We do have other bilateral lines of funding like overdrafts and guarantee lines, typically from our core banks.

On the other side, we have a reasonable amount of cash to manage and cash is king. I was able to rely on our Cash and Working Capital team to help us out in managing cash in the bank whilst we created the treasury team. Generally, we invest in money market deposits and are just beginning to invest in money market funds (MMFs) – all from our core banks. We have limits in our policies on counterparty risk to ensure we invest our cash in the most appropriate way – covering limit amounts and instruments – and due to our working capital swings, we usually keep everything relatively short term. As we are only now beginning to use MMFs, we are going to use the core banks’ standalone investment software initially but if we expand our use of MMFs we may well look at using a portal.

Since you were starting almost from scratch, what systems did you choose to implement?

I have had a fair amount of experience with treasury management systems (TMSs) and this was my fifth implementation. Although Cable&Wireless Worldwide uses SAP’s ERP system strategically, I did not think their treasury module was suitable in this situation because it did not suit our specific needs at the time as I did not have the time or resources available to take on a larger scale implementation. As I mentioned earlier, explaining treasury’s role to the rest of the business meant the importance of good systems was understood at a senior level and we could secure the budget for the TMS.

I wanted a smaller ‘best in class’ solution that could be implemented quickly and easily – one that could be scaled up at a later stage – again, deadlines required me to take a pragmatic approach to the process; fortunately my experience meant I knew exactly what I was looking for. Two TMS companies appeared to fit the bill, and we ended up selecting IT2. I have worked with them before and trusted them to deliver what we needed with minimal help from internal resources who were absorbed in the myriad of other system issues associated with the de-merger.

In this situation, it was vital to sit down with the vendor and have a full and frank discussion in which I explained our dilemma in terms of the limited resources available and the timeframe we were working to. Having worked with them previously, I could leverage that trusted relationship. IT2 quickly understood that I wanted to implement a system in phases that began with cash management, FX and basic deal recording functionality and that could be expanded and scaled up later.

I challenged IT2 to set it up within a week, and it was all ready before the de-merger with the accounts set up for the analysts to start work on immediately. Once that was in place IT2 took the next step in the process, setting up the interfaces with the banks so we got the position reports through the TMS. Whilst this was happening, our cash and working capital team was still doing the actual work until I had my team, infrastructure and basic processes in place and then we transitioned the work across to the treasury team.

Although it worked for us, I would not recommend this approach to any treasurers who do have the resources and time to complete a full RFP process. The RFP provides the strongest basis for contractual obligations and levels of expectation, for a start. When undertaking the RFP process I would recommend issuing a short, clear, concise proposal, then spending more time discussing the systems from the basic points upwards to make sure you get a system that fits all of your day to day needs as closely as possible. The expectation gap is always the most difficult piece to manage once the implementation starts.

We have also recently implemented 360T dealing portal and Misys confirmation matching to streamline and automate our money market and FX dealing processes.

How successful has the new treasury implementation been?

Operationally we still have a lot to do but we have achieved a lot. We had a documented treasury policy in place at de-merger which was re-adopted by the Board in January of this year and has been communicated to the whole business.

We have implemented a TMS which is secure, records deals and we manage our cash position through it, which is great, considering there are still a lot of treasuries which still use spreadsheets for that. We have the team in place. We report to the Board every month on compliance and to tell them what treasury is up to as well as give a global cash position report. We’ve implemented and documented all our dealing procedures – we have got a lot done.

On a strategic level, the company now understands the value of treasury and the experience it can bring throughout the whole risk process. Clearly, the de-merger financing has helped the business understand what treasury is able to do for the organisation. Also, whereas in the past, treasury would only get involved in sorting issues out after the event or being the ‘blocker’ when seeing issues at the eleventh hour; the business now understands that involving treasury in the early stages can add value in looking at the whole risk chain in commercial contract negotiations for example. The de-merger has helped in that respect.

We are well placed in the business and our profile means we can help the business units. We have established ourselves internally as the point of contact with regard to financial risk advice and guidance, which I think is great but we have to be careful that we don’t rest on our laurels as it is something that needs to be constantly worked at.

How does that risk advisory process work?

We tell the business that, “anything to do with FX risk, financial risk, borrowing, any of those areas, you should come to us as a start point and we will help guide you.” Clearly, that is underpinned by our treasury policy but we have to keep finding ways to reinforce that message regularly.

For example, we are engaged with our commercial colleagues at the early stages of potential contracts to make sure we are helping them look at the risks involved. We have a bank facility that has covenants within its framework, and we need to let the businesses know what that does and does not allow them to do.

FX risk is not a very big factor as although we have a presence across the world, our largest revenues are contracted from the UK. Having said that, we do have some FX risk, which generally comes out through procurement policies and commercial customer contracts when we deliver services abroad. Most of the exposure comes in terms of euros and US dollars, against which we are broadly hedged. The main issue is one of cashflow timing where we use FX swaps to manage the gaps. Where we have specific contracts in another currency we work with the commercial units and tend to use simple FX forwards to hedge those.

And what are your main plans going forward?

One key plan is the cash management strategic review which the assistant treasurer is undertaking. We inherited our current cash management structure from the structure that existed before the de-merger. It clearly worked well for the larger organisation in the past but is less well suited to our current needs now the system has been split in two. The review will go from the bottom up and be a very comprehensive look at what our current system is, what our needs are and how we could streamline our cash more efficiently.

This is all very easy to say but doing anything with cash management structures can be very time consuming. I hope to start off looking for ‘quick wins’ – plugging holes in one area or making efficiency savings in another – that make the processes more robust and sustainable.

We have a global cash management provider but in some areas of the business we do not have sufficient cash flow to justify their involvement so we need to study that and consider our options. For example, before the de-merger some of our sweeping arrangements would have made sense; now, some of those sweeps and pools need reviewing.

We have a zero balancing European pool which sweeps every day, but we also have a pool in Scotland, a UK domestic pool which is separate and small pockets in Asia Pacific and the US. Those smaller pools need reviewing and it may make sense to switch off the automatic sweeps to those smaller pools if the flow warrants it as they incur monthly charges and transaction costs without actually providing any real benefit to the company.

More broadly, we need to make sure we maintain strong relationships with our core banks and continue to align our banking relationships to best fit our business needs – different banks have strengths in different regions, for instance, and we need to make full use of those strengths.

The cash management review is a major project, but we have a good view of the structure currently. We will start by looking at historical data analysis from our banks and discussing the processes with the business units as we need to ensure it works for them too. In line with every other aspect of setting up this treasury, we are taking a very pragmatic approach to the project.

Cable&Wireless Worldwide is a leading communications integrator, specialising in the mission critical needs of large users of telecoms providing a wide range of high-quality managed voice, data, hosting and IP-based services and applications to large multinational companies, governments, carrier customers and resellers. With operations across the UK, Asia Pacific, India, Middle East and Africa, Continental Europe and North America, the company employs over 6,200 people. The company de-merged from Cable & Wireless plc in March 2010.

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