Continuing our bi-monthly series of interviews with senior figures in the world of treasury and finance, this month we talk to David Swann, Group Treasurer, BAT plc.

David, can we start by establishing what your responsibilities are as Group Treasurer?

Mine is a traditional corporate treasury role.

Importantly, we have the responsibility to support in four key areas:

1. Capital markets and funding

   – what I would like to describe as a corporate finance responsibility.Although we are not ultimately responsible for corporate finance in the true sense of the word, we are trying to make sure that all our funding decisions are made with reference to a target plan that is consistent with the way that the group wants to structure and achieve its plan.

2. Financial risk management

   – the obvious ones are foreign exchange risk and interest rate risk. But we are also starting to focus on commodity price risk and some of the more esoteric risk management areas.

3. Cash management and banking

   – bank relationships, bank tariffs, questions such as are we being efficient with our cash? This covers the traditional side of banking, but now in-country, regional and global cash management is becoming much more important to us.

4. Transaction execution

   – we have a dealing room here in London as well as in a number of locations around the world. Activities cover the usual range of treasury transactions involving the hedging of risk and cash management. We are looking at the possibilities of consolidating all dealing into a small number of treasury service centres.

Those are the core areas of responsibility. These are then overlaid with the geographical responsibility. As a business, BAT is structured on a country and a regional basis, so it only makes sense for us as a treasury support function to structure ourselves in a similar way. I sit at the centre, based in London. There are also regional treasurers dotted around the world, working with their local business counterparts and the individual country controllers. In some of the larger countries, places like the US, Germany, Brazil and the UK, we have very sophisticated in-country treasuries, managing things on a local basis, and often looking at regional issues as well.All of this is under a global framework, with a group policy setting out what the treasury is accountable for.

Does the structure of the company cause any problems for the treasury function?

Not that I’m aware of. You have to understand that the group is very decentralised. This has great advantages – the people running the businesses at the local level are incentivised to go out and do their best within a group-wide framework, which makes the need to be so coordinated less pressing. At the moment, weare not trying to manage ourselves, certainly from a treasury perspective, on a global basis. There isn’t a single global treasury centre.

So is it true to say that you set a broad policy and the local treasurers carry that out?

The local and regional treasurers are responsible for delivering what the group wants. What I should also do is differentiate between group treasury and central treasury. Group treasury is treasury in BAT for the group – I happen to sit in the centre as do a number of specialists. The regional treasury people are there to understand what the local business requirements are, so that they can deliver treasury services within this broader group treasury framework. They have all the specialisms both here in the centre and locally to draw upon.

Other companies that operate globally may take quite a tight control at the centre. Can you give an illustration on the sorts of things where you take the decision and those where the regional or local treasurer does so?

Take funding as an example. That is quite clearly a group level responsibility, for a number of reasons.As I said at the start, we have to make sure that we are aligned with the group’s corporate finance objectives.Also lenders and bond investors are looking to us as a group, so funding needs to be coordinated at the centre.I see our responsibilities at three levels in treasury:

1. To set policy and strategy.

   My role is to determine the vision for treasury and what services need to be delivered where.

2. High value-added treasury

   – what we describe as business partnership – which is clearly a local or regional treasury role. This is very much a case of getting to understand local needs and requirements and restrictions and regulations for treasury and then delivering some real added value locally. This will be within the framework that has been set, but will be tailored to local needs.

   These are the two aspects we are trying to develop further – we need to be world-class in the way that weset policy, set strategy and the way that we deliver advisory treasury services.

3. There is also the piece in the middle – the execution side of treasury.

   We want to be world-class in the way that we transact with banks. To achieve this, we need to make the process as efficient as possible; this is why the idea of setting up treasury service centres to handle all external transactions is so attractive because a focus of resource and expertise in this area will release more time and resource for the two big added value services.

How important is it to have co-ordinated systems, or do they operate on the local level?

Systems are pretty much operated on the local level. Integration is relatively straightforward on the banking side, where our core relationship banks provide consistent banking systems. On the treasury management side, we are big users of SAP Treasury where we are seen as a centre of excellence. We have recently introduced the system in Argentina, using the implementation and development expertise that we have developed in Europe, which has worked very well.

At the moment, the need to integrate the systems isn’t actually that great – the local people manage their own systems quite autonomously from a transaction and execution perspective. The situation will be different at some time in the future, when we start implementing treasury service centres. Then we will need to review whether the local operations would need a sophisticated treasury management system at all.

When you come into a new position you take on the systems and processes that must exist prior to your appointment. How difficult is it getting to understand how they work?

The treasury side is relatively straightforward. There aren’t many ways to skin this cat – treasury has a number of core aspects to it, that, if you have been around a bit in treasury, you can get on top of it fairly quickly. Much more of a challenge is understanding and living the dynamics of the business. For a group like ourselves that’s hugely interesting, because we are so geographically diverse. The business itself is not complex – from the growing of tobacco all the way through to the marketing of tobacco products is relatively straightforward – but when you do it in over 180 countries, each with their own nuances and differences, and then being able to identify the specific local treasury requirements – that’s the challenge.It’s more about entering a new industry and a new company – the treasury side is complex but it’s manageable.

How long has it taken for you to get to grips with the new company?

You are always learning. I’ve visited all the regions apart from one – South America, which I will be remedying at the end of this month. It is so important to be there and to see things happening; video conferencing is useful, e-mail is great, telephone is efficient, but you do really need to be there on the ground to understand the dynamics of the market and the pressures on people locally.

How long do you spend on these visits?

I spent a week in most regions and I’ll probably do the same for South America. Asia was very interesting – we have a regional treasurer based in Hong Kong working with the regional management team based in Kuala Lumpur. It’s easy to forget that treasury management in these parts of the world is far more challenging than in Europe.

How difficult is it coming in to a new position to deal with banks that you might have discarded in a previous position?

It’s a very difficult one to get right I guess. We are very much proponents of relationship banking.What that means is you plan for a long-term relationship – there might be ups, there might be downs – but youare together for a long time. So you can’t join an organisation and just wipe the slate clean of the relationships that have existed for a number of years just because you had a poor relationship in another role. Thankfully, I haven’t had that problem in this role!

When you come into a new job, there must be a balance between changing things because you are new, and needing to maintain and build on existing developments along the wider timescale.

Yes – the skill is trying to balance the two. One thing that this job has taught me is that you shouldn’t try to bite off too much too soon. It’s very easy to look at the whole range of treasury management activities and responsibilities and see so much that you can change. But you’ve really got to prioritise things by asking what’s really important and what’s going to ultimately provide the most added value to the business.

Can we move to the specifics of cash management? How is it organised?

Fundamentally it is performed on a local basis. Some regions are very good at managing their cash on a regional basis, with others it is less developed. There are some parts of the world where cross-border regional cash management is a very difficult thing to do in the first place. Do we manage cash truly globally? No, not at the moment. But that’s one of my objectives – implementing global cash management, at least for some of the major currencies.

On a general basis, in which areas is regional cash management possible?

Let’s start at the easy areas. North America – cash management in North America, and the US in particular, is a science. Our cash management in this region is excellent and there’s not much more that can be achieved. Europe – cross-border cash pooling, certainly for the euro, is becoming much more viable. Asia is a very interesting area – it’s a big growth market for us and increasingly in that region you can actually do some sophisticated cash pooling. So, US – well developed, very mature; Europe – just about there; Asia – that’s the area that we’ll focus more on in the future. In other parts of the world, cross-border cash pooling is often the least of our concerns.

Do have the same bank within each region? For example, do you have a European bank or a country bank for each European country?

Typically there will be an in-country bank in each country. At the moment, the existing cash pool inEurope uses a European bank to pool in euros.

In other parts of the world, the local treasurer has amongst the job responsibilities to organise and maintain local bank relations?

Yes – within the framework we set out.

On the markets side, are the local treasurers responsible for investing any surpluses that they might have or is that a group decision with surpluses repatriated?

There is cash management on a local basis, but increasingly what we are trying to do is manage cash on a consolidated basis just to reduce the cost of carrying both a large portion of debt and cash on the balance sheet. We try to manage that position in the most effective way. This often means keeping cash locally or accepting the fact that cash will kept locally until it can be dividended up or can be swept or pooled in someway.

The key issue is that we know who is doing what with whom. We have very strict guidelines as to how the cash should be managed – counter-party risk is controlled centrally, so we know with whom the funds have been placed, and again the regional and local treasurers’ job is to make sure that guidelines and policies are being adhered to.