Michal Kawski, Head of Treasury, Gazprom Marketing & Trading:

At Gazprom Marketing & Trading we operate a fully centralised global treasury function headquartered in our London offices. The department has been structured so that it facilitates strategic partnership and ensures continuous interaction with other areas of the business. Overall, it is our role to understand the business requirements and ensure that we deliver these quickly and efficiently. To do this, we provide quality support for the business in any geographical location and at any time of the day.

To achieve our role as strategic partner to the business, we have implemented an operational model which applies to both the business units and the entities. Firstly, our support to the entities (namely our subsidiaries) is managed and analysed by our cash management team, which focuses on their short-term objectives. One member of the team is assigned to an entity, or a group of entities, and acts effectively as a treasury manager for these, maintaining key discussions in areas such as short-term cash and liquidity management. These managers are also supported by the local financing and accounting teams on the ground that assist in reporting the treasury requirements and ensuring that we can meet them.

Our support to the business units on the other hand, focuses on their medium to long-term strategies, offering analytical support for these. We apply a similar structure to our support for the entities, allocating a member of our liquidity team to a particular business unit. These then work alongside their unit and offer assistance on a plethora of treasury issues, such as their working capital requirements, interest rate costs and FX implications, to name just a few.

Treasury is also deeply involved in the cash side of the business units’ planning and budgeting process when developing a financial strategy. As a department we interact with the business units and discuss treasury related factors which can impact them, such as their cash profile and cash requirements. We then evaluate this information and estimate the costs of funding, helping to derive a financial strategy for that business unit.

It can often be the case when treasury gets centralised that treasurers disappear from the subsidiaries and from companies across the group as the department begins to detach itself away from the rest of the business. This directly impacts communication channels and the ties with the rest of the business begin to disappear. Because of this, strategic decisions will not be well informed from a treasury point of view, and to my mind, centralisation will fail if treasury doesn’t become a strategic business partner.

At Gazprom Marketing & Trading, communication amongst the group is a key driver to how our business operates. The structure of the treasury therefore has been designed specifically to allow information to efficiently flow through the department. This permits us to accurately anticipate the requirements and respond to these quickly and efficiently. We can also communicate where the company sits with regards to funding and liquidity levels, which has a direct impact on the decision making process of the commercial side of the business and allows us to become a strategic business partner.

Ciar Timon, Senior Regional Treasury Manager, Honeywell:

A winning treasury organisation is one which clearly demonstrates how it can add real value for its company to both operational activities and projects. Treasury needs to be a proactive partner to the company, not just responding to specific requests but continually providing information about any new technology or processes which can enhance the company’s business model and drive efficiencies. There should be constant communication and a sharing of best practices between treasury, tax, contracts, credit control, legal and accounting departments and treasury should also foster a relationship between the company and the banks.

Honeywell treasury’s role is to support the acquisition, growth and operational strategies of the company and to leverage strong banking relationships to this end. We become involved early in the acquisition process, participating in the due diligence exercise and then working on the integration of the acquired company – some treasury processes can be put in place even before the deal is signed. Within a short time, our customer and value-focused strategy can produce cost savings, process improvements and elimination of waste.

We support Honeywell’s global growth strategies by anticipating the company’s needs and providing solutions. In each country or region, we provide our businesses with a bank capable of supplying the most forward-looking, efficient and cost-effective cash management infrastructure, with a strong, secure control environment and robust processes. Our strategy is to standardise and automate every process where practicable. However, we don’t automatically accept the status quo, but adopt an approach which takes into account the cultural, regulatory and logistical constraints in each country.

Treasury should be able to demonstrate quantifiable returns. A strategy of using one bank per country and strong negotiating tactics has enabled Honeywell to take advantage of economies of scale and to reduce cash management costs dramatically. Improvements in electronic banking connectivity, automation of banking processes and online bank guarantee solutions produces measurable time savings. Elimination of waste, eg the closing of redundant bank accounts and monitoring and cancellation of expired bank guarantees, results in tangible cost savings as well as freeing up precious bank guarantee credit lines. The implementation of an inter-company netting process, such as the one we have set up with Bank Mendes Gans, reduces payment flows and associated costs to one per month, as well as minimising foreign exchange costs.

Honeywell treasury’s role also includes: implementing the use of cash pools for cash concentration, to allow effective deployment of funds from cash-rich to cash-poor entities and to minimise external borrowing; focusing on key metrics and analysis to assist the businesses with decision-making; ensuring the implementation of full cash visibility for planning and investment purposes; promotion of hedging programmes to minimise foreign exchange risk; and reduction of bank guarantee risk by promoting the use of standard wording and by regular training which emphasises the implications of using non-standard wording, for example, open-ended expiry and assignment clauses.

Sander van Tol, Partner, Zanders:

Integration between treasury and the business is a prerequisite for an effective and efficient treasury organisation. The remit of the treasury function has changed over the last few years, and treasury is now expected to be much more of a pro-active advisor to the company.

Traditionally, the added-value of the treasurer was primarily based around how to manage cash flows effectively. This rather operational role of the treasury function has gradually evolved over the last decade towards treasury becoming more of a strategic partner to the business.

Currently, treasury is seen as the expert in the quantification of financial risks and the time value and accessibility of future cash flows. The specific knowledge around those two areas, quantification of financial risks and time value of money, can and should be used in an integrated way towards the business. There are numerous examples of where this specific knowledge is required and can add value to business processes, for instance in the capital allocation process. Treasury plays a leading role in advising the CFO on decisions around complex investments, taking into account country specific risks, diversifying companies’ debt portfolios, project-specific WACC calculations and impediments from restrained cash.

Yet another, mostly still undiscovered, area where treasury can play a pivotal role for the business is on the commercial side. Best market practice is to evaluate (forecasted) sales by taking into account financial risk factors. By measuring the risk adjusted return on sales (RAROS) the company can gain greater insight into the true profitability of individual projects and business transactions.

Furthermore, with treasury’s integration with the business, we are seeing the scope of the treasury function increase, to include areas such as pension funds, working capital management, credit risk management, insurance and procurement. With regard to the latter, treasury is often asked to support procurement around purchasing commodities and energy, as well as managing the related financial risks from this process.

Elsewhere, in the area of managing working capital, treasury is well positioned to take a leading role to work towards a more efficient use of cash within the supply chain. With financial supply chain management, the company is able to decrease working capital while at the same time increasing supply chain resilience. This is vital for most corporates, since supply chain disruptions are proven to be costly.

Against this backdrop and with the increased focus on centralisation and standardisation that we are seeing with treasury working in close co-operation with AR and AP departments, companies are increasingly outsourcing their payments, and to some extent their collections process, to a shared service centre (SSC). With the use of a payments and collections factory and concepts like payment on behalf of (PoBo) and receivables on behalf of (RoBo), corporates are able to significantly increase efficiency, control and visibility. In the light of increased demand for real-time visibility and accessibility of global cash positions this is considered best market practice.

In short, due to the increasing ‘added-value’ brought by the treasurer to business processes, the remit of the treasury function has actually grown. Treasurers should grasp the opportunities that this change brings, thereby adding even greater company value.