Since joining Mitsubishi Corporation International (Europe) Plc as General Manager of its European treasury centre eight years ago, Gary Williams has implemented some significant changes in terms of policy and technology. His work to date has been at the forefront of the creation of a modern and streamlined operation – with barely a spreadsheet in sight.

MC’s current activities are expanding far beyond its traditional trading operations, as its diverse business ranges from natural resources development to investment in retail business, infrastructure, financial products and manufacturing of industrial goods. MCIE’s business largely focuses on a traditional import/export commodities trading role, through its six business groups: Global Environment and Infrastructure Business Development Group; Industrial Finance, Logistics and Development; Living Essentials; Metals; Machinery; and Energy. Its turnover for the year ended 31^st March 2012 was £599m, giving a profit after tax of £58.6m.

In the world of production strategies, Japan leads the way. Amongst numerous workplace philosophies, it has given us Lean, Just-in-Time, Kaizen and the 5S principle, to name but a few. Each has its own purpose and methodology, but all focus on effective workplace organisation. They have been designed to help simplify the workplace environment and reduce waste, whilst improving quality and safety. In the treasury space, safety is perhaps not an issue (unless you count paper cuts as a threat) but the other values are absolutely critical to the effective management of the function and, ultimately, of the business.

It is perhaps entirely appropriate then that under the guidance of MCIE’s decidedly British-sounding Treasury General Manager, Gary Williams, the spirit of Japanese orderliness (if not the exact principles of Kaizen et al) has been instilled within his London-based treasury centre, delivering an operation that, although small, has a major impact on the day-to-day running of the business across the region.

Arriving some eight years ago, armed with ACT qualifications and a decade of experience acquired in treasury management at energy firms, British Gas and E.on (preceded by a career in banking with J.P. Morgan and Riyad Bank), Williams now runs MCIE’s treasury centre and in-house banking team of five. With oversight of the firm’s UK and European financial operations, their work is split between asset liability management (ALM), short-term cash management, FX hedging, trade finance and payment/receipts, and also looks after downstream activities such as confirmations, settlements, accounting and reconciliations. Operations are purposefully kept simple and a key part of this is its use of technology, not only to drive a high level of straight through processing (STP) but also to deliver absolute clarity of purpose and visibility across all processes. In the current economic environment this is only to be applauded.

Trading in a crisis

Being a Japanese Sogo Shosha (a general import and export company), MCIE’s turnover is generally quite high whilst margins remain competitive. With the continuing economic turmoil in Europe inevitably some of its regional counterparties have been affected through lower demand for commodities and the stability of their banks. Consequently, Williams pays close attention to credit-related issues to ensure MCIE’s position is protected, a task he says requires constant monitoring. “On the positive side, our financing costs have been competitive, with lower interest rates and less volatile credit-related margins.”

Williams is somewhat less sanguine regarding an end to the European debt crisis. “It has been dragging on for three years or so, and whilst efforts have been made to calm the markets it seems that good news is short lived,” he comments. Sometimes the focus goes elsewhere (he cites the so-called ‘fiscal cliff’ that the US government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect), but generally any sight of untoward news is taken as “a good excuse for a sell-off”. Consequently, he believes that there is “no real trend and a lack of long-term confidence”. For Europe to get a grip economically, Williams sees stronger political union, where all countries are at least facing in the same direction, as the only way forward.

The crisis has brought a raft of regulatory reforms for the banking sector and these are starting to cause ripples of concern in the corporate space. At parent level, Williams says the business is subject to Sarbanes-Oxley (SOX) and therefore further down the line (at MCIE’s level) regular internal and external checks on systems and workflow cycles are experienced. “I think at first I struggled with the overhead that this brought, however over time the process has been streamlined and become more efficient,” he comments.

Over-the-counter (OTC) derivative legislation, which will demand more bank reporting, has arrived and within the MC group there has been a concerted fact-finding effort to understand who is doing what in terms of derivatives, what the underlying nature of the contracts are, where there is hedging and trading and who the counterparties are. “We’re currently building up that picture and then we’ll take the required action,” say Williams. What also concerns him is the possible effect on pricing that the OTC derivative legislation – and Basel III – may bring. “Indications are that the banks will look to pass on some or all of their increased costs to the end user.”

On the whole though, Williams says MCIE’s banking relationships have remained “healthy” and in some cases have improved since the advent of the financial crisis. “I believe it pays to try and keep good relationships through thick and thin.”

Special FX

On a day-to-day level, the upheavals only really impact MCIE’s treasury through exchange rate volatility. MCIE’s relationship with its banks centres on the provision of FX dealing facilities. As 90% of its revenue is in foreign currency, translation exposure remains a major risk and alongside FX transaction exposure it undertakes a “significant amount” of hedging. “We’re dealing in commodities that are priced in dollars, therefore some of the profit and loss is also in dollars. Consequently we have to keep an eye on this,” says Williams. Some companies have a similar risk where they hold overseas investments on the balance sheet in foreign currency and therefore may decide to hedge that asset, he explains. “This is a similar situation in that it is still a translation risk, although it relates to earnings.”

FX volatility of course means that budgeting can also be difficult: as Williams says, “costs are relatively easy to predict but FX gain/loss and interest figures are somewhat difficult”. MCIE’s hedging policy framework is always agreed before the start of each fiscal year, along with FX budget rates. “We review the previous year’s performance against budget rates and then formulate a plan of action to try to exploit upside movement whilst protecting the downside with a stop loss against the budget rate,” he explains. To ensure it remains appropriate, that plan is revisited three times a year and any decisions taken are done so using a balance of analysis and experience. “Using technology too much means sometimes there is no reality to the budget; there must be a personal overlay with it to make sure the figures stack up.” There is no exact science to this process and in terms of budget accuracy the golfing analogy “nearest to the pin” is applicable to what is acceptable.

Although banks play their part, MCIE is mainly internally financed via its affiliate company, Mitsubishi Corporation Finance. This is an entity that is set up to source cash from the capital markets (via issue medium-term notes and commercial paper), undertake bank borrowings and look after the interest rate risk of the European region. The two-tiered financial structure means that on top of the range of treasury services MCIE provides (such as FX, trade finance, payments and receipts), it also acts as a conduit for finances further downstream, providing to some of the subsidiaries in Europe.

To this end, MCIE’s European treasury centre was created with an in-house banking operation, primarily to reduce legacy system costs and bank fees. It aims to provide short-term financing, FX and payment/receipt facilities for the regional subsidiaries. Whilst most subsidiaries understand the benefits of the in-house bank, Williams’ operation still has to ensure that its rates and pricing are close to what can be achieved externally.

IT matters

In practical terms, the in-house bank is based around functionality provided by MCIE’s IT2 TMS. This system effectively acts as a hub that the overseas subsidiaries can access remotely to view data (it also affords them some input capability). MCIE’s core systems – the TMS, along with its access to the enterprise-wide SAP ERP (supported and controlled out of Tokyo); its own FXall dealing platform (which also handles all FX and the occasional money market transaction confirmations); and the Bank of America Merrill Lynch (BAML) CashPro® bank management system – are all “plumbed in” so that “on the whole they all speak to each other”. Consequently, this has given Williams’ team a high level of automation for processing of payments and receipts, deal import/export and confirmation matching. “We also run automatic bank reconciliations in IT2 that are ready when we walk into the office in the morning.”

Within MCIE, each department is accorded responsibility to make its own IT arrangements, and is free to source whatever is required as long as it “OK’d by IT”. Under such a regime, the high level of STP achieved within treasury is clearly no accident, picking best of breed solutions to suit its needs. Williams’ team purposefully avoided the “big-bang” approach to implementation, developing the system architecture slowly but surely. “I’ve learned by experience not to make changes too quickly,” he says. Although some IT changes were “no brainers”, others have required extensive testing and re-design to ensure a result that “everyone is happy with”. The net effect has been to free-up staff to do what they do best. “When I was recruited my first priority was to look at the team and, where need be, bring in people who had the relevant experience,” he recalls. “Since that point, a team has been developed who have gained relevant qualifications and are experts in their own field.”

Whilst that high degree of STP means there is “very little fall-out or repair work that has to be undertaken” within MCIE, the fact that Williams has assembled a team of professionals who know their job “inside out” means they can get to the heart of the problem quickly when it is required.

It is rather telling that MCIE’s treasury has very few spreadsheets in use, and then only as a conduit for data out of SAP’s Business Warehouse (for P&L and balance sheet results). “It has been one of the things I have eliminated since I’ve been here,” states Williams. And for good reason: he believes that as a small department it is vital for everyone to have visibility through a central system rather than via a series of locally maintained spreadsheets with changes that are not necessarily known to everybody. Quite apart from that, he also argues that there is no point in paying out for a treasury system and then not using it.

Having used IT to help create and empower the small but perfectly formed team (Williams says it is now at its optimal size), he has further ambition to be able to post customer receipts directly to the individual accounts receivable (AR), “but given issues such as bank charges and amalgamation of payments, life is not that easy”.

With his openness to technology and the raised level of industry chatter around mobile treasury, particularly at conferences, has it impacted on Williams’ day-to-day activities yet? Whilst he admits to having “heard a lot about it”, mostly from the banks, his view is that the concept is still not widely accepted. “My thoughts always return to security and having documentation around me – I would personally feel a little bit exposed if I was on the move approving payments.” Having said that, he does see the advantage that a mobile treasury solution could offer “as a contingency”.

SEPA fan

Where many treasurers are yet to adopt the single euro payments area (SEPA) with any conviction, around 66% of MCIE’s euro payments are made this way. “We identified that a high percentage of our euro payments could be sent via the SEPA route if we added a SWIFT code, IBAN and SEPA indicator,” explains Williams. (MCIE does not connect directly to SWIFT: “From a European perspective, I don’t think we need it; we’re served adequately by the banks,” says Williams.) For SEPA data it worked with its subsidiaries to convert what it could until it was “satisfied with the results”.

Whilst the immediate objective here was to exploit SEPA’s promise of reduced unit charge per payment, he feels it also gave rise to a worthwhile housekeeping exercise in tidying up some old data. “We wanted more of a consistent approach in terms of the data that is set up in the system and on our invoices so we rolled it out to include other factors as well.” The next step is to migrate the remaining payments being made through the legacy systems that won’t be around come the SEPA deadline of 1^st February 2014.

The treasurer’s lot

Given the obvious importance of the role and the responsibilities attached to it, Williams is acutely aware that the business world in general sometimes takes for granted the position of treasurer, in relation to other professional colleagues, especially when times are good. This attitude is largely driven by the structure of the business in which the treasurer is working, but there is, he acknowledges, a natural tendency to focus more attention on the profit-generating areas of a business. “However, in times of financial turmoil, when cash becomes inaccessible or FX rates become volatile, then treasury is back in the spotlight.”

Standing in the limelight may not be the default position for most treasurers, but when the audience is listening, it is time to talk. In the past few years Williams has pushed forward many positive changes in both treasury policy and technology. But he has also taken it upon himself to learn Japanese, partly in acknowledgement of the challenges that his colleagues from Tokyo may have when visiting London. It may be a “work in progress”, but conversing in one of the most difficult languages to learn for a native English speaker is surely a good way of fixing the attention of those who need to be listening to their treasurer right now.