Case Study: Auchan Replaces Spreadsheets with a Specialist TMS

Auchan is a multinational retail group, with headquarters
in Croix, France, while treasury is located in Marquain, south west Belgium.
The treasury department manages the group’s liquidity requirements, those of
its network of domestic and international subsidiaries, and oversees foreign
exchange (FX) and interest rate risk. Auchan’s liquidity requirements are met
via issuance in the capital markets, bank finance and promissory note issuance.
The treasury management team determined that an Excel-based solution no longer
adequately supported an increasingly complex treasury operation in today’s
demanding financial control and reporting environment.

In reaction
to the developments of 2008 – most notably in the financial markets, subsequent
regulation and internal realisation of the changed environment’s operational
risks, Auchan re-thought its treasury operation. We decided to develop group
treasury’s structure and processes into a new organisation, based on a banking
treasury model. The planned evolution included improvements such as segregating
treasury duties and responsibilities, improved control and enhanced governance.
It was also necessary to redesign our treasury processes to properly reflect
this new structure.

The Background

Auchan’s treasury department is now organised into three core sections: front
office, back office and treasury control, which is in charge of the middle
office and financial reporting.

As a key part of the re-thinking
exercise the team researched the Excel-based solution then in place, which had
been developed by the in-house technical team. This system was supported by an
Access database, which handled interest rate calculations, intra-group loans
and consolidation of exchange rate exposures. It exported this information
daily to our treasury software for tracking and reporting subsequent
operations.

Our analysis identified various problem areas and
limitations:

• It wasn’t possible to implement a front-to-back office
  automated workflow, so there was no real control to provide assurance that
  operations being performed and reported gave a true reflection of the
  underlying reality of the treasury business.
• Generation of reporting
  was difficult and time consuming, compared with manual alternatives.
• The solution was inadequate to fulfill the daily requirement for
  calculating position mark-to-market (MTM) valuations.
• It was difficult
  to perform the required position reconciliation function.
• A reliable
  audit trail was unavailable, so fundamental control and transparency was
  missing.
• The system lacked the segregation of duties needed for
  effective treasury control.
• There was no workflow automation for our
  repetitive operations, so the process was inefficient.
• There was no
  obvious route for complying with the European Market Infrastructure Regulation
  (EMIR), for statutory automated reporting of over-the-counter (OTC) derivative
  hedging operations.

From Excel to a TMS

Our conclusion was that we should replace the spreadsheet based system with a
specialist treasury management system (TMS), allowing us to address identified
problems and limitations and empowering us to meet evolving compliance demands
such as those imposed by EMIR and international financial reporting standards
(IFRS). We could also meet the requirements of our upgraded treasury
organisation and policy and also comply with the new standards of operation.

It took 15-18 months from inception to the completion of the
review, planning and TMS selection exercise. The work included detailed
requirements analysis, specification and documentation, as well as organising
the professional staffing to support the new treasury regime.

Upon
evaluating TMS solutions, we learned that Auchan’s banking affiliate already
used 3V Finance’s Titan system and were operating a banking treasury before
this type of organisation had been implemented at group level, using Titan to
support their operation. This provided an effective proof of concept for the
solution in the live operating environment of a banking treasury. We confirmed
the vendor’s performance standards and the solution’s effectiveness in an
actual business environment, so were happy to select Titan for interest rate
risk management. Our analysis of the system’s performance at our affiliate, the
reactivity of the vendor’s business teams and the quality of technical
development work were key factors that supported the choice of a single
solution for our new TMS requirements and convinced us to proceed.

Implementing the TMS

The implementation process
took about six months elapsed time. The team was led a project manager, with a
representative from the front, middle and back office of the treasury
department. Weekly project management meetings, both internal and with the
vendor’s professional services teams, monitored progress against the plan.

The new TMS is effectively a database providing Auchan treasury with a
range of the latest financial market-based information. All our reporting is
now generated through selecting relevant information from this database. We
continue to use Excel, but now it fulfills its proper business role producing
of formalised reports as data tables and graphs. This output is based on the
information constructed and stored in the TMS, which is exported to Excel for
formal presentation.

Business Benefits

Auchan treasury now enjoys a range of new business benefits from the TMS:

• Generation of a full range of analytical reports on interest rate and
  exchange rate risk exposure management, enhancing the visibility of financial
  risk positions and control.
• Automated effectiveness testing on our
  hedging portfolio, using automation to facilitate this complex process.
• Effective counterparty risk management t via the system’s estimation of the
  default risk relating to each market operation and to each transaction’s bank
  counterparty, so we can respond to any adverse changes in credit status.
• The software solution allows for segregation of duties in the performance of
  all treasury processes, thus meeting the levels of control and operational
  quality required of a banking treasury environment.
• Recording of
  changes in treasury positions and interfacing with other treasury software has
  been completed, achieving process automation objectives.
• All evolving
  informational and analytical facilities of the TMS software are used to benefit
  the entire Auchan enterprise.
• For IRFS compliance, the precision and
  accuracy of the system’s MTM calculations has been validated. This enables us
  to break down the revaluation results into their time and intrinsic value
  components, enhancing compliance quality and financial position visibility.

EMIR Compliance

The department
is currently working on the next evolutionary step for treasury operations –
EMIR compliance. We must implement a daily reporting exercise across our entire
derivative portfolio, for both external and inter-company hedging transactions.
The new report’s format is based on the automated construction of a 70
character table.

The TMS solution is indispensable for such a
demanding technical task and our vendor is working on developing the EMIR
reporting solution with the Depository Trust and Clearing Corporation (DTCC),
the principal trade depository to which we must report daily by automated means
to achieve full compliance with EMIR’s rigorous criteria.

Conclusion

Our system implementation and
operational usage have been central to the development of treasury that met
Auchan’s strategic objectives. We have replaced Excel as our primary treasury
support tool and installed the required front to back office automated solution
that enables transparent, audit-compliant daily liquidity, FX and interest rate
risk management operations to be performed. Our technical platform gives us a
secure basis to adapt to evolving market and regulatory requirements.