RTL Takes a Look at the Future Role of Treasury
The treasury department is relatively small compared to the size and complexity of operations. There are five central treasury staff members based in Luxembourg. We are responsible for all the usual treasury and corporate finance tasks. We have tried to centralise these activities as far as possible and to achieve the optimal levels of cash, debt and financing for the group. Treasury is also responsible for the hedging of both interest rates and FX for the whole group. Recently, it also became involved in managing pension funds and group risk management reporting (according to requirements of the German Kontrag). There is a formally constituted Treasury Committee, which meets two to three times a year. The role of this committee is to validate new procedures, policies and changes in strategy.
Treasury acts as a service centre, not a cost centre. We charge our subsidiaries for the services that we deliver to them. The fees that we levy are designed to cover treasury’s direct and indirect costs plus costs of ratings. We do not have a benchmark to measure our performances. However, we do get reports from both FXall and our treasury management system (TMS) on the amount of business we do with each bank. This is important because we try to ensure that we place business with banks according to the amount of credit they provide us with and bank policy.
The major risk RTL faces is FX risk (major exposures are USD, GBP and CHF). When managing FX risks, our objective is to minimise volatility on the P&L account. RTL has reported under IFRS since 1 January 2001. The RTL strategy consists of applying partly hedge accounting. The on-balance sheet exposures are fully hedged. The off-balance sheets items are hedged according to a specific FX policy and hedge accounting is applied to most substantial deals (roughly 80 per cent).
The liquidity issue is covered by shareholder large credit facilities, coupled with euro commercial paper (ECP), Belgian CP and euro medium-term note (EMTN) programmes and bilateral committed facilities.
Our credos are maximum efficiency, automation in order to reduce risks and free time for more added-value tasks and segregation of duties, which always remains challenging for small teams.
We are looking at the future of the company and developing a treasury roadmap able to meet the requirements of the company. The issues we are examining include whether or not to develop a payment factory, how to reach the further step towards the STP and how to keep improving our cash flow forecasting in the medium term and how to transfer to Magnitude (consolidation/information tool from Cartesys) the remaining treasury and risk management reports, which are not yet group formatted and fully automated.
One of the objectives, after having successfully implemented SAP CFM, would be to keep updating the solution, improving interfacing and automating processes. Having done this, we will also focus in 2005 on managing working capital more efficiently and on exploring the possibility of introducing a multilateral netting system.
In the past two years RTL has improved its cash flow forecasting, as it became the centrepiece of the company’s more effective liquidity management strategy. RTL gradually benefited from much better and more precise cash projections. It has created a better discipline throughout the group and raised awareness among affiliates.
The treasury team is getting involved earlier and earlier in the merger and acquisition processes to help in structuring appropriate financings and hedging where necessary, especially in eastern countries. Over the past few years, we have successfully moved from being a very decentralized treasury to a centralised and professional one. We have pioneered the implementation of IAS 39. In other areas, we do try to follow leaders in treasury. Our ambition is to remain close to leading edge of innovative treasury trends.
“Every new difficulty overcome should be the occasion for new progress,” said Baron Pierre de Coubertin. The role of treasurers has expanded and changed profoundly in recent years. This rapid change can be explained in terms of different factors that have caused it, such as legal, fiscal and technical aspects, IT, financial and economic factors and international accounting rules. In the age of globalisation, it would be surprising if the treasurer had remained immune to that phenomenon. Treasurers had to come down from their ivory tower and emerge from isolation that wrongly confined them. Several recent financial scandals have shown how apparently solid firms can be quickly undermined, or even smashed to pieces, and the importance of keeping a firmer hold on the purse strings.
Financial experts, treasurers in particular, have never been such an important part of the company. The key word nowadays is “profitability”. The treasurer has been required to intensify centralisation of activities and aim for maximum efficiency or competitiveness. They have become as much a generalist in finance as an in-depth multi-specialist, in that they cover a range of different disciplines and have particular skills and expertise and, like a chameleon, are constantly adapting to an ever-changing environment.
Treasurers need to create value. For example, treasurers certainly create real value when they reduce volatility of the P&L account through hedge accounting strategies, when they improve the working capital cycle, or when they apply coherent bank relationship management.
The treasurer has a role of integration “facilitator” in assisting in M&A operations. But he is also a sort of internal consultant servicing other departments or subsidiaries. For this he needs to become a better communicator. Treasurers have a much more strategic role than in the past, closer to that of the CFO. Treasury has become extremely specialised, combining specific qualities at a very high level. The treasurer is a watchtower, watching over the financial heart of the company, which makes them indispensable.