The ACT’s Annual Conference 2019 opened with some exhilarating sessions, including a keynote from broadcaster and journalist Jon Snow, and an overview of global geopolitical and economic forces at play. [https://www.treasurers.org/thetreasurer/lessons-from-the-ACT-annual-conf....
My first session of choice was ‘Managing FX Risk in a Volatile World’, a panel discussion hosted by Deutsche Bank, comprising two very different case studies on managing FX risk. These provided a refreshing practical contrast to the excellent but high-level opening speeches and were also of particular interest to me, given I am writing an FX risk management policy for a client.
We first heard from Yusen Logistics, a subsidiary of Nippon Yusen Kaisha, a large Japanese shipping company. Yusen Logistics is a supply chain services company specialising in freight forwarding, contract logistics and transportation with a global revenue of around €4bn and 25,000 employees.
Its German division has found particular challenges around managing FX volatility derived from the timing difference between when a USD invoice is issued and payment is actually received. Hedging using forward FX deals had not worked, so the company had collaborated with Deutsche Bank to develop an automated solution using the bank’s Maestro platform. Essentially, Yusen is uploading the net exposure from accounts receivables and payables into Maestro. The system will then convert the net exposure into a hedge, which can be used whenever cash is coming in by means of a swap. Otherwise, Maestro will automatically carry forward the hedge in order to keep Yusen fully protected at all times. Yusen had found this a lot simpler and less time-consuming than managing FX forward deals.
Next, we heard from FTSE 250 energy company Drax Group. Within the parameters of a flexible FX policy, the aim of which is to protect the downside, Drax is able to dedicate circa 10% of its multibillion derivatives book to ‘optimisation’. Lisa Dukes, head of treasury, FX and operations, explained that the company has developed its risk management approach by focusing on creating a policy with a strong protection framework, while being able to be dynamic and reactive to optimise the book within a well-structured risk management process.
The company is now at a point where it sees FX volatility as an opportunity (it has been managing risks from both sterling appreciation and depreciation) and views its FX exposures as a portfolio. Having treasury professionals at senior positions within the company – including on the board – is an advantage in terms of understanding and developing policy. The treasury function works collaboratively with its banks to design strategies and innovative groundbreaking FX products to better manage its identified risks, including both spot and forward points, while not restricting credit lines.
I found both approaches fascinating. They perhaps raised more questions than answers. Nonetheless, it was interesting to hear of two very distinct approaches to FX risk management.
Following a more than acceptable lunch, some intense networking and two sessions from conference co-sponsor HSBC, I decided to take advantage of the sheer variety of sessions and subjects on offer, choosing a session on payments in the digital age hosted by one of the pioneers of treasury system technology, Bellin.
This jam-packed and interesting session showcased three case studies of companies that have implemented this system. Organised in a panel format, we heard from: Adam Watts, senior treasury project manager at Japanese-owned, London-headquartered Dentsu Aegis Network, a multinational media and digital marketing communications company; Shomyl Brohi, group treasury manager at Premier Oil; and Joanna Fanthorpe, front office treasury manager of one of the largest global charities, Save the Children International. They have an incredible and humbling amount of experience between them.
Highlighted were the productivity, control and visibility benefits provided by a solution that can sit on top of multiple enterprise resource planning (ERP) solutions and provide connections to multiple banks, offering a quick alternative to those who might be waiting for one ERP (with a treasury module) to be rolled out across their entire organisation. These businesses were now living in a world where they no longer logged into a bank portal (or many other systems), but into Bellin instead, where they could undertake intercompany netting, connect to banks via the SWIFT network (providing SCORE agreements were in place), and collate and analyse cash forecasts uploaded into the system by numerous subsidiaries.
System consolidation, centralised management of user access and security were major benefits. With respect to the title of the session, ‘Payments in the digital age’, the bank connection via SWIFT allows payments to be made in the most optimal manner (speed versus cost, versus security), especially when XML formats and SWIFT gpi when it is widely utilised. Next steps on their roadmaps are Bellin-enabled payment factories and payment approvals using an app.
On the train home, I reflected gratefully on the opportunity I have had to attend the conference this year and how it has been so much more than I expected – in scale, in content and in connections made. In particular, I reflect on my chosen profession, which inhabits a fascinating niche at the intersect between organisations and their financial providers – ground occupied by everything from fintech to macroeconomics to politics – a place where disruption, change and challenge are a constant.
James Leather is a treasury consultant