Head of Treasury, Asia Pacific
Founded in 1902, British American Tobacco is one of the world’s premier tobacco companies, with brands such as Dunhill, Pall Mall, Kent and Lucky Strike penetrating over 200 markets globally. Its global presence saw the company sell 676 billion cigarettes worldwide in 2013, contributing to revenue of over £15 billion – with Asia Pacific contributing the largest portion of revenue at £4.2 billion, a 28% share. The business prides itself on its responsible behaviour from the crop to the customer and is a key part of many local communities around the world. Despite the challenges facing the industry, the company is going from strength to strength and is innovating new and safer forms of cigarette and tobacco.
Since joining British American Tobacco (BAT) in 1998, Russell Phillips has witnessed many changes. “The company has been on a journey towards centralisation which began around the time when I first joined the treasury team,” he says. The scale and scope of the changes have had a tangible effect on Phillips’s career and in shaping his current role within the treasury.
Phillips joined BAT as a management trainee following graduation from university. “The company offers a very good financial training programme which allows individuals to move between different finance roles within the organisation, while also studying for their management accounting qualification,” he says. It was during these rotations that Phillips found himself in a middle office treasury role. “At the time I didn’t understand what treasury was all about,” he admits, “so it was an eye opening experience and an extremely valuable one. The level of interaction both internally and with external partners, such as the banks, was very enjoyable and after experiencing other areas of finance it was treasury that I found the most interesting.”
Having successfully completed the management trainee programme, and inspired by his experience in treasury, Phillips moved into the dealing room for his first management position. “This was a very dynamic role in an exciting environment, and I worked with some very good people,” he recalls. With a touch of nostalgia he describes how dealing was done before the advent of internet trading platforms. “There was a lot of banter with the FX dealers at banks when you had to pick up the phone and competitively bid. It provided a great environment to build relationships.” The introduction of platforms such as FXall has changed this way of working, however. “In this regard the relationship element has diminished,” says Phillips. “We have more efficient working processes now, but the technology has taken a degree of fun from the role in some instances!”
After his experience in the dealing room, Phillips moved through different areas of the treasury department, including corporate finance (management of BAT’s debt programmes), and commercial treasury. “The size of BAT means that we have a fairly large treasury and finance function so I have been exposed to various roles,” he says. “This has provided me with an excellent foundation in treasury and made the move to my current role as a regional treasurer smoother.”
“There was a lot of banter with the FX dealers at banks when you had to pick up the phone and competitively bid. It provided a great environment to build relationships.”
In his current role, based in Singapore, Phillips is responsible for the Asia Pacific region spanning from Pakistan and Bangladesh in South Asia to Australia and the Pacific Islands. His remit doesn’t include India, because the company has an associate in the country. Activity in China is also limited as the industry there is largely monopolised by the state owned China National Tobacco Company. The region is a major growth area for the company and in the last six years it grew from 20% of group operating profit to 30%. “It is a very interesting and diverse region from a treasury perspective as you have developed markets with sophisticated banking infrastructure and then those that are less developed. It makes working in the region very challenging as no two problems are the same.”
To fully grasp Phillips’ regional role, he stresses the importance of understanding the structure of treasury in BAT and how the recent changes have shaped his remit, the principal change being greater centralisation.
At the end of 2012 British American Tobacco started the global implementation of a single instance of SAP. The project is the largest the company has undertaken and treasury was at the forefront of the project. “We had been planning to upgrade our treasury management system (TMS) for a number of years in order to increase our visibility and better manage our risks,” says Phillips. The treasury team decided that rather than have their own dedicated TMS it would use the treasury module built into SAP in order to better integrate with an ERP for the whole organisation. “We had the design in place for the system for a while and in many respects had to wait for the readiness of the rest of the organisation,” he says.
Central treasury was first to go live on the new instance of SAP implementing in-house cash at the end of 2012. Asia Pacific was then the first region to implement the full ERP template and finished the roll out earlier this year. “It is early days and we are still bedding down the system, but as a regional treasurer I am already reaping the benefits of having increased visibility and control. We have been able to achieve a great deal of straight-through processing (STP) and made many processes more efficient,” he says. “This allows treasury to focus on advisory and other more value added activity.”
Off the back of this project treasury has taken another step towards centralisation and established a Global Treasury Operations (GTO) centre annexed to the group’s shared service centre (SSC) in Romania. “Both back and middle office now sit in the GTO and we are pushing more and more activity from the region and the centre to the GTO,” says Phillips. “What we have is a highly centralised structure with ‘central’ treasury based in London and Singapore, supported by the GTO in Romania. Minimal treasury resources sit in the end markets.”
Phillips says that in general the role of the treasury worldwide has transformed following the financial crisis. “It has certainly changed in our company. The crisis provided us with the mandate and opportunity to engineer new processes, such as cash flow forecasting, and improve the function.” The historical role of treasury in Phillips’s view was to ensure that a robust and efficient treasury infrastructure and risk management processes were in place. “This is now something that is assumed, and the monitoring and control happens in the background,” he says. “Because of the centralisation journey my team’s primary role is to be an effective commercial business partner and act as a centre of excellence in the region for the business to call upon and consult on liquidity, FX and all manner of topics.” In assuming this role treasury has earned the trust and respect of the senior management, who can then concentrate on core business activities.
Not one to rest on his laurels, Phillips is conscious that the treasury needs to constantly support and add value to the wider business. “The focus on treasury can wax and wane, so while what we have achieved in the last ten years is fantastic and highly regarded by the company, we must maintain momentum and ensure the business continues to understand the risks we manage by ongoing education.”
As well as the evolving remit of Phillips’s role, day-to-day treasury activity has also been altered. Like many companies, BAT has been affected by currency movements in recent times and this is something which Phillips and his team have paid particular attention to. “The devaluation of currencies such as the Yen, Australian dollar and Indonesian rupiah hurts; it impacts the business and increases costs,” explains Phillips. “It is our role to smooth transactional FX impacts by hedging, so in recent months we have increased the forward cover on exposures.” Technology has greatly improved the way which BAT is able to manage this process. “We have a highly automated hedging programme which utilises SAP with bespoke programming on top to show us exactly what our exposures are and what deals are required to maintain target hedge ratios.” This process has helped ensure that currency risks are managed effectively. For a company which values certainty, this mitigates a material financial risk.
“Of course there are a number of illiquid currencies in Asia so we do have to take some risk,” says Phillips. He points to the Indonesian rupiah as one such example where the cost of hedging is significant. “In this case we don’t hedge as far out as we would with a liquid currency – we make a call regarding how much cost we are willing to take for the certainty.”
Overall, change management currently takes up a vast amount of Phillips’s time. “When a new system is implemented there are often teething problems. Once these are ironed out the challenge is to change people’s ways of working and behaviour, to adapt to new processes,” he says. “This is something the regional treasury team is leading – we are not just treasurers, we are change managers.”
“The focus on treasury can wax and wane, so while what we have achieved in the last ten years is fantastic and highly regarded by the company, we must maintain momentum and ensure the business continues to understand the risks we manage by ongoing education.”
Education of stakeholders is cited as the main weapon in this battle. “If people understand the need for change, they are more likely to accept it. For example, if you are trying to push activity to GTO from Pakistan and Bangladesh, two countries where our teams on the ground have traditionally managed autonomously, then it may not be welcomed. But if we explain why, highlight the benefits, that they will have more time to focus on core business activities, then it may be more widely accepted. It cannot be stressed enough how important communication and relationship building have become to the modern treasurer.”
Asia Pacific is a good place to be for a treasurer with a strong emphasis on building and maintaining relationships, especially with the banks. Globally, British American Tobacco has a group of core relationship banks which it aims to use whenever possible. However the nature of the region means that this isn’t always possible and that some relationships with local banks must be formed. “Before we centralised treasury the end markets had their own local relationships, but over time we have stripped these back and moved business towards our core banks. However, where we can’t do this, our role as regional treasury team is to ensure we have a good local banking partner who can provide the services and level of quality required,” he says.
While the end markets are focussed on performing core business activities, regional treasury takes a more active role in building and maintaining these bank relationships. This comes to the fore when banks seek an audience to demonstrate new products. “We have to control this because we want the banks to come to us in regional treasury rather than engaging with our end markets,” he says. We can then decide if products and new ideas are value added and leverage the relationship.”
In general, Phillips is happy with the levels of service provided by BAT’s banking partners. “We have undertaken a number of partnering projects where we let a bank have access to the company to understand the business in more depth, and then work together to find new and improved ways of working,” he says. “In doing so we have achieved a number of benefits which have supported the business in the region.”
However, there are some challenges which the banks cannot solve. “Cash and cash collection remains an ongoing challenge for our industry in the region. We continue to expand our presence in developing markets which have significant cash economies with a high degree of unbanked citizens,” says Phillips. The regional treasury team has to find solutions to efficiently manage issues such as security, value dating and reconciliation of cash – something Phillips describes as ‘real nuts and bolts treasury’. “Technology has evolved in this space to seek to replace cash, but there is no complete solution to become cashless and the banks need to understand this when supporting us in these markets.”
Indeed, Phillips wants to see the banks offer more in certain areas. “On the vendor side, FXall and SWIFT have been among the biggest game changers in recent years. These multi-bank platforms are the future. I’d like to see more innovative products from banks. This ultimately comes down to their ability to understand their customer’s needs. Overall they need to start thinking differently – and they need to deliver,” he says. As well as innovating, Phillips believes that banks also need to live up to their promises in terms of post-sales service. “Banks can sell well, but they need to follow through once they have won the business. Sometimes they let themselves down in this regard.”
The journey which Phillips has been on during his time with British American Tobacco has tested his ability to adapt, as well as demonstrating the full value of the treasury to the business while the company undergoes major changes. It has also allowed him to experience a number of different cultures. “There are many differences between working in Europe and Asia Pacific and it is great to be fully immersed in the culture of the region,” he says. “I enjoy travelling and seeing new places. I travelled for a year after university and now I have the chance to do it with my job. It is an enriching life experience bringing the family to a new country to live and using this as a stepping stone to explore Asia.”
In addition to the geographical exploration, the journey has been an educational one: “it has been very interesting to see not only the evolution of the company during my years here but also the evolution of treasury as new technology, ways of working and responsibilities has transformed the role,” he says. “Treasury is such a rewarding career because it never stands still.”