Headquartered in New York, Omnicom Group Inc. is a strategic holding company which owns and operates around 1,500 agencies worldwide in the areas of global marketing and corporate communications services. Omnicom employs approximately 63,000 staff and the company’s net income for 2009 was $793m.

Dennis Hewitt is Treasurer of Omnicom Group Inc. and President & CEO of its subsidiary Omnicom Capital Inc. He is responsible for corporate finance, investment management, currency and interest rate risk management, global cash management, working capital management and leasing.

Prior to joining Omnicom in 1988, he served as Senior Vice President and Treasurer of Young & Rubicam, Inc. He has also held executive positions at Arcata Corporation, Rockwell International, and Ralph’s Grocery Company.

Dennis received a Masters in Business Administration from the University of Southern California and a Bachelor of Science degree in Business Administration from UCLA.

Global approach to a decentralised structure

When Dennis Hewitt joined Omnicom as Treasurer in 1988, the company’s revenue was under $1 billion. Now 22 years later, this figure is almost $12 billion. As Hewitt remarks, “I’ve worked for a small, medium and large company, and never left my desk.”

The structure of Omnicom today includes approximately 1,500 operating units which are managed under five networks: BBDO, DDB, TBWA, Diversified Agency Services and OMG, the media planning and buying arm. These are managed on a very de-centralised basis, to the extent that they occasionally compete for new business.

Despite this decentralised structure, the focus is on taking a global approach wherever possible. “The challenge for treasury is to maximise the cash flow and the liquidity of the company in this environment,” comments Hewitt. “We do it by establishing a series of treasury centres geographically, which concentrate the regional liquidity. The treasury centres are inter-connected, so in effect we can centralise the liquidity and the financial assets of the company on a daily basis.”

Omnicom defines its 35-strong treasury team as ‘one treasury, three locations’. These three locations – Connecticut, London and Dublin – are responsible for different regions, and in addition each centre has a different specialisation:

• The treasury centre in Connecticut is responsible for the US, Canada, Latin America and some of Asia. Connecticut is responsible for the overall corporate balance sheet and capital structure, as well as overseeing the company’s centralised leasing programme.
• The London treasury centre is responsible for non-Eurozone Europe, as well as Africa and the Middle East. It also shares responsibility for Asia with the Connecticut treasury centre. London undertakes all the FX trading and positioning for the company on a global basis.
• A third treasury centre based in Dublin handles the Eurozone activities. Dublin acts as the company’s information centre, tracking daily cash balances in all of Omnicom’s bank accounts and keeping track of bank fees, as well as performing other specialised information gathering activities which facilitate decision-making in treasury.

The ‘one treasury’ philosophy is manifested in the shared use of systems and a focus on interaction between the three treasury centres on a daily basis, taking advantage of video conferencing and telephone conferencing. The biggest obstacle to effective communication is the time zone difference, which is combated by extended working days.

“Realistically, in the world we’re in today, in a global organisation, everybody’s either on duty, physically located in one of the offices, or they’re taking phone calls or getting messages anytime day or night,” says Hewitt. “We have though moved into much calmer waters than we were in a year ago. During 2009 with all the risks, all the uncertainty, all the economic upheaval, people were available 24 hours a day.”

We spoke to Dennis Hewitt about the lessons learned during the financial crisis, the evolving regulatory climate and Omnicom’s current projects.

What major challenges do you face today?

The major challenge is protecting the company’s assets in this era of uncertainty and increased risk: providing liquidity when and where it’s needed on a global basis. I’d also add preserving a strong balance sheet.

We strive for straight through processing and we configure things so they are paperless. We have invested heavily and for many years in our IT infrastructure and systems. In fact we’re a little unique in that we have our own senior IT specialist assigned directly to us.

What concerns did the crisis hold for your treasury?

From a financial standpoint, our philosophy has always been to maintain a very strong balance sheet and to have more than adequate liquidity available to us, should the need arise. We had worked very hard on that in many of the years leading up to the crisis of 2009, which really began in 2008 with Lehman. The financial markets began to shut down. We were a commercial paper issuer, and had been for the past 20 years. That market became unavailable to many issuers, including us. Fortunately, we also had in place revolving multi-year credit facilities that we could fall back on at reasonably attractive rates to fund ourselves, more than adequately.

Treasury is also responsible for the working capital performance of the company. The biggest asset on our balance sheet is our accounts receivable and the biggest item on our liability side is accounts payable, because our business is heavily oriented towards pass-through costs, such as buying media and other services on behalf of our clients.

During the crisis, managing receivables and payables became a very important and visible activity within the organisation. Worldwide during 2009 we actually reduced working capital to a greater degree than our decline in volume. We did that through management of our accounts receivable and our credit as ways of protecting ourselves.

Is it true that working capital has gained importance throughout the treasury world since the crisis?

It’s certainly true throughout the treasury world, but I think that in our case it goes a little further. I wouldn’t say we’re unique but we are perhaps unusual in that Treasury has responsibility for the overall working capital performance of the company.

With that responsibility comes a lot of attention paid to this area, not only in the development of our systems but in the regular review of our processes and the people who manage them to ensure we are meeting the business needs. We can track all of our receivables on a global basis, almost on a weekly basis; we certainly do it on a monthly basis. We hold performance meetings regionally with the operations each month discussing their performance, and we undertake credit analysis on our clients. We have credit insurance which we use to transfer the risk. When you have a large media receivable, less than 10% of that receivable is actually your revenue.

The other thing that we did was to be careful with protecting our cash in terms of keeping risks to the absolute minimum. In the US our investments through 2009 were geared towards banks that had the enhanced FDIC insurance that we use to backstop the deposits. Further, in 2010 with the discontinuation of the FDIC enhanced insurance programme we continued to remain very conservative in the US, depositing cash with selected banks. Overseas we are very careful where money is held, and we didn’t invest in money market funds because we felt we didn’t understand all the risks that might be present. Most of our investments were time deposits with selected banks that we worked with on a daily basis.

And has that moved on now?

Very little actually: the yields have not yet moved to the point where you’re being paid to take any risk on short-term cash investments.

How can treasury be prepared for the next crisis?

In a way it’s like performing your own stress test, much as various institutions have done in the financial industry to figure out where the weak points are and what you need to do to protect yourself.

I think it’s important to have good relationships with your banks – and to have long relationships with the banks. It is also important that our banking group matches the footprint of the Group worldwide – that helps us maintain access to global financial markets and to take steps to have the markets available when the need arises. You need to assess what risks there are on your balance sheet and develop programmes to minimise those risks.

Did you see much of an impact in this area during the crisis?

That’s an interesting question. Omnicom has always operated with a philosophy of having strong bank relationships. What that translates into is that we have been very conscious to match up the banks that provide us credit with non-credit services, to enhance their return on us as a client. We work very closely with our banks – in fact, one of my two assistant treasurers spends a significant amount of his time working with our banks, keeping them apprised of what we’re doing. Although we use revolvers, we do have banks that are designated as syndicate agents and so forth. We actually do the syndication ourselves, in this way; we have a good understanding of what they are interested in from us and tailor the syndication based on what we are interested in from them.

We’re coming out of a recession – does that change the way you’re investing or your financing plans?

Not really. I think that what has helped us in this rough patch is the fact that we prepared for the worst and we had sources of liquidity significantly beyond what we thought our needs might be, either in terms of actual cash held or the availability of vehicles to raise funds, and that hasn’t changed. I guess we need to be prepared for the next recession.

Are any of the regulations currently in the pipeline of particular concern to you?

Well, the thing that concerns me generally about regulations is that if we look back to the crisis, we had regulations in place that weren’t followed, which contributed to the crisis. We had regulations that supposedly were inadequate, that have been replaced with new regulations – but those supposedly obsolete regulations are still on the books, so we’re kind of piling regulations on top of regulations without any relief.

Is there anything out there that you think is going to be useful?

I think it’s too soon to tell. The regulations themselves are one thing – it’s the philosophy of how they’ll be administered which will really determine whether they will have a negative or positive effect on us.

Looking at the industry more generally, is treasury getting easier or more complex?

Treasury is certainly getting more complex. The term sovereign risk was not in the vocabulary a couple of years ago. Many things were taken for granted: documents and institutions and so forth.

Today you have to be careful who you do business with, who your counterparty is; you have to look beyond whatever the credit rating might be. You can look at the banks themselves, and ask what kind of a reputation they have, who the management team is, how well capitalised are they and how appropriate you feel they are for the transaction you’re contemplating doing with them.

Technology and communications certainly have made us more efficient and effective, and have significantly advanced the timing of information reporting. We have much greater visibility into what is going on in our operations on a daily basis, which allows us to make better decisions and spot potential problems much earlier.

Final question: what projects do you currently have planned?

We have several projects. Most of them are designed to accomplish our objectives of having a global perspective, enabling straight through processing, and becoming as paperless as possible, and we’ll be relying heavily on IT to achieve these.

We are looking at ways of improving our efficiency and using these to reduce the amount of capital we need to run the business – and to more effectively manage the movement of funds globally in a way that, again, allows us to reduce the amount of capital it takes to run our business. We are actively analysing how we can put a treasury centre concept within the People’s Republic of China. We are looking at enhancing the way we do our capital budgeting processes.

We have also focused very heavily during the past two years on working capital, on the accounts receivable side of the business, and I think we’ve done a very good job there. I think that there’s much to be gained by focusing on the accounts payable side, particularly with some of the emerging technologies, with SEPA coming into being in Europe. There are a lot of opportunities. We’re looking into how we can more effectively manage our accounts payable on a global basis. We’re looking at finding ways for our operations to manage their accounts payable processing on a paperless basis.

In addition, we are looking at our bank relationships globally, focusing on the banks we have that are not our core credit banks, and we are moving the non-credit business more towards those banks to make us more attractive as a candidate for credit as we renew our different credit facilities. We are also looking at other banks to add to our credit facilities, based on their existing cash management business with us.