EuroFinance

Companies with complex balance sheets or credit rating challenges are finding that treasury automation and outsourcing have their limitations. Nick Dunbar reports.

Outsourcing and financial technology have only limited value for treasurers at highly-pressured companies such as Tesla and Mattel, members of their treasury teams told the International Treasury Management conference in Geneva.

Take California-based carmaker Tesla. The fast-growing company has a larger market capitalisation than auto giant Ford, and has a complex balance sheet.

“There are some aspects of treasury that are hard to automate”, said Saumya Mohan, Americas region treasurer at Tesla. “One of the key ones for me has been cash flow forecasting”.

As Mohan explains, treasury automation is harder when manual inputs or frequent updates are required, involving the treasury in discussion with business units and financial planning & analysis teams.

“You need to dig deep into variances and understand whether a shortfall will be recouped in the next period or is permanent”, Mohan said. “Similarly whether an unexpected inflow is a pull forward of future revenue or cash flow, or is something that was unforecasted. Those things are still hard. Forecasting software still doesn’t do the job that the right people can do”.

At US toymaker Mattel, while the company has outsourced certain cash management activities to a third-party, and has shared service centers, all other treasury operations management requires a hands-on approach according to Mattel’s treasurer Mandana Sadigh:

“There’s a fine line between hype and reality – and I don’t believe in the hype. While I have a lot of respect for systems like artificial intelligence and robotics, I do not consider treasury operations as purely an activity-based role. Treasury is not about processing check and reconciling bank accounts. It is a strategic role requiring one to dig into the business and understand it”, she said.

”Those activities won’t get automated. Your insight as an individual makes a difference”, added Sadigh.

Danone, the multinational food company based in Paris, sells products in over 120 markets worldwide and had total sales in 2017 of €24.7 billion. The company has an FX hedging policy to manage its 45 currencies and 100 currency pairs, relying on exposures reported in a consolidated tool.

Speaking at EuroFinance’s annual flagship treasury conference this week, Danone’s Brice Desmaretz, corporate finance & dealing room director, said: “I would love to say we have a clever tool using AI or robotics to assess our forward exposures”. But as he commented in the conference plenary session, “treasury is about people” .

“We tend to hedge 6-12 months, well beyond payment terms, deriving our fx exposure from a rolling forecast model, and this is done based on regular committes gathering people from sales, ops, procurement and finance”, he added.