Future Proofing Treasury helps sail through business adversity and accelerates digital transformation

At a time when businesses are under pressure to manage cash flows more efficiently than ever, centralised treasury operations can help diversified companies ride through economic adversity, cut costs and accelerate the transition to a digital future.

In another of HSBC’s specialised webinar series, Eyad Abdel Rahman, Group Treasurer at Abu Dhabi-based private conglomerate Ittihad International Investment LLC, shared lessons about tackling the COVID-19 pandemic as well as the group’s digital treasury transformation.

Ittihad group started its centralisation of its treasury operations right after establishing the HO end of 2008. This has helped in managing the group working capital and debt requirements during their rapid expansion covering their diversified portfolio manufacturing, healthcare, construction, utilities and environmental services – reaching sales of circa AED7.2 billion (U.S.$2 billion).

Preserving liquidity

This strategy meant that when the pandemic shattered established supply chains and brought global economies to a standstill, Ittihad, with over 10,000 employees, was still able to navigate through liquidity challenges.

“We have initiated an emergency fund as a contingency to be available to support the group businesses cash requirements at any point of time also to avoid any obstacles arise from unforeseen circumstances, this is made available to honor any liabilities or obligations towards third parties” Abdel Rahman says.

As the next step to preserve liquidity, Ittihad prioritised payments based on urgency of the same and focused on timely cash collections, adjusting payment times on both sides at the same time.

“By asking clients to pay sooner in exchange for a discount, we managed to get cash collected earlier,” he says.

At the same time, the group used tools such as pass-through certificates (PTC) and letters of credit (LC) not only to secure receivables, but also to get liquidity by discounting them.

To save on finance costs, Ittihad’s treasury department also investigated unnecessary additional charges, managed its operational and cash cycle through the use of the most suitable and cost efficient bank products. Credit insurance served as additional security to the group’s receivables.

A weekly cash flow meeting kept corporate finances under tight control during the pandemic.

“Everything we did was helpful in that difficult time without having any default with banks, or any major disruption in operation,” Abdel Rahman says.

Initial future-proofing

In order to centralise and digitise its treasury operations, Ittihad took a series of steps.

• Rationalise bank relationships and choosing a key banking partner In addition to reviewing pricing, Eyad noted that a key KPI for selecting the right banking partner was their Digital capabilities. This would help its key objectives of making their treasury function fit for future.
• Integration of internal systems with the bank systems and removing manual transactions with suppliers while maximising the usage of technologies and systems.

“We consolidated funds in few major banks, and shifted totally from doing manual transfers to online ones through these banks sophisticated platforms” Abdel Rahman says.

• Using cash pool structures.

“The cash pooling is a really good structure that we have with HSBC, which we have been using for a long time. The structure is very simple, a range of amounts of funds placed in the account against an overdraft,” Abdel Rahman says.

“The more you have of these funds, the less interest you pay. It's just a simple structure, yet it adds a lot of value to us,” he notes.

HSBC works with its clients to streamline and optimise treasury transformation. Being always at the forefront of investment in technology, it is the right partner if you are looking to transform your treasury operations.

Establishing controls

In order to better control its business, Ittihad deployed a series of tools.

• Using working capital tools to optimise costs, forecast cash flow and manage liquidity
• Implementation of technologies and systems such as a Treasury Management solutions (TMS), which gives access to daily and intraday transactions, balances, forecasts and all kind of information related to short and long term bank liabilities.
• Establishing various treasury reports such as daily cash position, monthly forecasts, and exposure report that includes thorough details of every single account, company, liability and bank.
• Regular monitoring of securities.
• Monitoring markets and news through Reuters and Bloomberg services.
• A regular treasury department newsletter providing updates on market movements of currencies and interest rates, news, covering domestic and international markets.

“The growth of our group needs to be monitored and controlled. And therefore, you need the treasury department to look after that size and make sure it's going in the right direction,” Abdel Rahman says.

Aiming to accelerate its treasury digital transformation and ensure seamless operations, Ittihad is in the final stage of completing Enterprise Resource Planning (ERP) integration with banks and TMS allowing a direct and immediate transfer of payments.

Transforming treasury, APIs (application programming interface) offer the opportunity to capture data around transactions, almost as they happen, delivering real-time connectivity between bank and corporate.

Without APIs, integration of the corporate TMS or ERP with a bank can require a heavy lift of technology.

Evaluating banking relationships

Ittihad assesses regularly all associated risks related to its existing relationship with banks, , to ensure continuity with the ones that are capable to strongly perform and able to accommodate the group requirements all the time.

It produces an annual internal evaluation report assessing bank performance and relationship based on feedback from its subsidiaries.

HSBC plays a key role in partnering businesses to select and provide the best digital innovative solutions, including moving to real-time payments and mobile collections.

Centralised treasury operations give a diversified conglomerate such as Ittihad an edge in being able to take decisions swiftly, unifying data from different subsidiaries into a single information source for its management.

“In terms of reporting requirements, centralised treasury gives you quick access to information for quick decisions,” Abdel Rahman says.

Such an approach also brings cost reduction efficiencies, as the group is likely to get better financing terms from banks compared with its individual subsidiaries.

The strategic value of treasury operations has risen during the pandemic as companies need efficient cash flow management more than ever. A centralised treasury department is vital for diversified businesses, providing insight for efficient real-time decisions as well as cost savings.