Treasury Transformation –
How BAT achieved treasury
efficiency
Jaap Nooij (BAT)
Judith van Paassen (Zanders)
November 2013
Agenda
 Introducing BAT and Zanders
 Triggers for treasury transformation
 Zanders approach - 7 steps to transforming treasury
 Drivers for treasury transformation at BAT
 BAT’s steps for treasury transformation
 Treasury transformation at BAT – day to day and lessons learned
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BAT – Facts and Figures…
 Formed in 1902, as a joint venture between the UK’s Imperial Tobacco
Company and the American Tobacco Company
 World’s second largest quoted tobacco group by global market share
 Operating in over 180 markets
 Market leader in over 60
 44 cigarette factories in 39 countries
 Group volumes 694 billion
 Employs over 55,000 people
 British American Tobacco (BAT) p.l.c
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...and the financials*?
 BAT is a top 10 FTSE100 company
 Market capitalisation £70bn (30 May 2013)
 £45.8bn in gross turnover
 £5.4bn profit from operations
 Net debt of £8.6bn and cash of £2.1bn
 Annually paying £30.7bn in taxes (incl. excise duties)
* 2012 financial year
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Introduction to Zanders

Zanders is an independent European consulting firm specialized in the area of
Treasury and Finance

Founded in 1994 by Chris J. Zanders, currently with offices in the Netherlands
(HQ), Belgium, Switzerland and the United Kingdom
Because of successful growth, Zanders has become the leading consulting firm
in Europe and thought leader in the area of Treasury and Finance

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Agenda
 Introducing BAT and Zanders
 Triggers for treasury transformation
 Zanders approach - 7 steps to transforming treasury
 Drivers for treasury transformation at BAT
 BAT’s steps for treasury transformation
 Treasury transformation at BAT – day to day and lessons learned
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Some triggers of transformation…
1. Organic growth of the organization
2. Desire to be innovative and best-in-class
Technology driven opportunities
Efficiency pressure
3. Event-driven (merger, acquisition, spin-off)
4. External factors (financial crisis, regulation)
5. The changing role of corporate treasury
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Expanding Role and Complexity of
Treasury
Volatility in Financial Markets
Regulation
Globalization
Expanding Role
Traditional
Role
Technology & Communication
Risk Intelligence
CFO & Business Relationship

Increasing external complexity:
– Financial crisis is causing volatile financial markets (FX, interest and commodity)
– Introduction of new regulation (IFRS, FASB, SOX, Dodd-Frank, EMIR, Basel 3)
– Globalization (G20) and emerging markets (BRIC, MIST)

Many global treasury organizations reached high level of internal complexity:
– Mergers and acquisitions resulted in complex treasury organization, systems and processes
– Drive for centralization of operational tasks, however lack of automation and system integration
– Increased focus on cash visibility and working capital, however lack of real-time information
– Increased control and reporting requirements (CFO dashboard)
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Expected Trend in Next Decade:
Back to Productivity
1980..
1990..
2000..
2010..
Working
Better
Working
Cheaper
Working
Elsewhere
Working
Simpler
Reengineering
Outsourcing
Globalization
Simplification
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Strategic Opportunities for
Simplification
Treasury Area
Trend
Recent Past
Near Future
- Virtualization
- Centralization
- Local empowerment
- Decentralized
- Local services
- Virtual global organization
- Centralized (IHB/PF)
- Enhancement of SSC concept
- Maintain company culture
- Independence
- Rationalization
- Balancing bank fees
vs. credit commitment
- Multiple banks
- Multiple bank accounts
- Multiple EB tools
- Multiple single cash pools
- Balanced banking wallet
- Simplified account structure
- Independent bank connectivity
- Multi-currency overlay cash pool
System
Infrastructure
- Automation
- System integration
- STP
- Stand-alone system
landscape
- Non-automated interfaces
- One global portal
- Integrated best-of breed TMS
vs. full ERP solution
- Seamless interfaces
Treasury
Workflows &
Processes
- Simplification
- Standardization
- Enhance compliance
- Many different processes
- Not very standardized
- Labor intensive
- Uniform processes
- More with less
- Dematerialization of paper
Treasury
Organization
Banking
Landscape
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Agenda
 Introducing BAT and Zanders
 Triggers for treasury transformation
 Zanders approach - 7 steps to transforming treasury
 Drivers for treasury transformation at BAT
 BAT’s steps for treasury transformation
 Treasury transformation at BAT – day to day and lessons learned
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Zanders 7 Steps to Transforming
Treasury
Idea Generation
5. Selection
6. Execution
1. Review and
Assessment
4. Business Case
7. Post-Execution
2. Solution Design
3. Roadmap
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Agenda
 Introducing BAT and Zanders
 Triggers for treasury transformation
 Zanders approach - 7 steps to transforming treasury
 Drivers for treasury transformation at BAT
 BAT’s steps for treasury transformation
 Treasury transformation at BAT – day to day and lessons learned
12
Drivers for treasury transformation
Roll back to 2008….
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Drivers for treasury transformation
Impact
Bank credit and liquidity
 Began to be constrained
FX
 Significant impacts. For example (all vs. USD):
Currency
Jul / Aug-08
Dec-08 / Jan-09
% change
KRW (Korea)
1000
1500
-50%
BRL (Brazil)
1.57
2.50
-59%
UAH (Ukraine)
4.60
9.50
-107%
RUB (Russia)
23.5
36.4
-55%
Key question:
 ‘What was the expected impact of FX on 2009 performance?’
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Drivers for treasury transformation
The answer
 Lack of reliable data:
-
No consistent definition of FX exposures
No standard analysis of FX impact
No regular reporting
 BUT: impacts were potentially BIG. Reliable and regular visibility of
cash, liquidity and FX an essential starting point to manage the risks
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Agenda
 Introducing BAT and Zanders
 Triggers for treasury transformation
 Zanders approach - 7 steps to transforming treasury
 Drivers for treasury transformation at BAT
 BAT’s steps for treasury transformation
 Treasury transformation at BAT – day to day and lessons learned
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Steps for treasury transformation
A longer term chronological evolution
• Period 2000 - 2008
• Treasury service centres established
• Centralised dealing of FX and expanded cash pooling
• Some rationalisation of banking and some technology
standardisation.
• Some automation ( H2H banking interfaces , Fxall )
• New Treasury policy and Treasury operations manual
• Identified requirement for better technology in order to expand TSC’s
scope , improve management reporting , improve efficiency, reduce
costs.
All small but important incremental steps towards ……..
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Steps for treasury transformation
The starting point:


A new Target Operating Model across all functions to be enabled by a globally
standardised ERP , “OneSAP”

A robust blueprint describing the end game model for BAT’s Treasury operations.

Standardisation and simplifications of Treasury processes .
Tactical alignment opportunities ( close the gap towards the end game )

Standardised cash forecasting (Definitions , Process , Reporting cycles) enabled by a
dedicated cash forecasting system

Expanding intercompany netting

Bank rationalisation ( closing bank accounts, concentrate liquidity )
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Steps for treasury transformation
1.
Define the Target Operating Model – the goal
2.
System design, configuration and development to enable the TOM
3.
Improve ability for planning and control – the Forecast ( cash, FX , liquidity risk) .
4.
Treasury Tactical alignment: Back to Basics
-
FX Optimisation
-
Cash management and banking efficiency
-
Bank account rationalisation
-
Inter-company netting
5.
Go live
6.
Global deployment and Treasury transformation
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3
1
2008
Tactical alignment
SAP
Go-Live
BATCASH
Define TOM
2009
Execution change
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2
OneSAP Deployment
OneSAP development
2010
2011
2012
2013
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BAT’s SAP deployment
Overview
 Programme TaO, covering:
-
Operations, Marketing and Finance, including Treasury
In 100+ countries
Roll-out completed in 3 years
 Pilot completed: Malaysia market + Global Treasury. Live in Sept-2012
 Subsequent deployment in five waves, complete by end-2015
 Using IBM as the system integrator. For Treasury, Zanders was
contracted
 For quality assurance, Treasury supported by e5
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Treasury organisation
Evolution from 2008 onwards
De-Centralised
Centralised
Automated
To-Be
GTO
TaO
Interim
Tactical alignment opportunities
Manual
TOM
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Potential benefits
Overview
 Potential benefits tracked from the outset of Treasury Transformation
-
Essential to support change management
 Categorised across a range of areas:
-
Banking
Funding costs
Insurance
Overheads
 Doing the basics well realises value: 60% of total benefits realised before
system roll-out. The low hanging fruit picked as result of tactical alignment.
 More ambition = more effort = more benefits!
-
The more you look, the more benefits you find
Potential benefits now more than 8x’s the initial estimate
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Agenda
 Introducing BAT and Zanders
 Triggers for treasury transformation
 Zanders approach - 7 steps to transforming treasury
 Drivers for treasury transformation at BAT
 BAT’s steps for treasury transformation
 Treasury transformation at BAT – day to day and lessons learned
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Treasury change management - day to day
1. Explain new operating mode and system functionality.
2. Collect information from Business units.
3. Match against Target Operating model and System template design.
4. Discuss with and challenge end markets where required.
5. Define the Fits , Fits with Change and Gaps.
6. Only accept GAP in case of true Legal , Fiscal or Regulatory requirements.
7. Build and implement solution.
8. Adopt new operating model.
•
This is the real change management. Converting theory into practice. The tough
job.
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Lessons learned
1. Define your goal ( Target operating model) . Explain to and convince your key
stakeholders.
2. Build your business case . Know your stuff!
3. Delivering without investing makes your case more credible. Pick the low hanging fruit.
4. Once you start, the thinking on scope and potential benefits evolves and expands.
5. Doing the basics right will realise tangible benefits, both monetary and in preparation for
system deployment.
6. After a while, people forget what it was like before and accept the new ways of working.
7. For the system development, an experienced consultant is essential. Push thinking
hard for maximum benefit. Second opinions are helpful.
8. People don’t like change. Selling tangible benefits helps.
-
Senior management buy-in is key to success
-
Having a mandate for change is essential
9. And remember : the change is on the work floor. Change is about people and
people’s jobs.
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Thank you and questions
Judith C.M. van Paassen
Partner
Jaap Nooij
TaO Treasurer Banking and IHC
T: +31 35 692 89 89
E: j.van.paassen@zanders.eu
T: +31 (0)20 5406 755
E : jaap_nooij@bat.com
www.zanders.eu
www.bat.com
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