EuroFinance

Amazon’s strategic transformation in liquidity management

In the current ever-evolving financial landscape, Amazon has redefined its approach to liquidity management. Facing rising interest rates, the treasury team, led by Tony Masone, vice president and treasurer, has adopted a strategy that turns this challenge into an opportunity. Rather than simply reacting to increased borrowing costs, Amazon leverages its cash reserves to help balance the impact of these higher rates.

“In the current landscape, interest rate management is a balancing act. We’re navigating a scenario where, yes, we’re borrowing at a higher rate, but we’re simultaneously investing at a higher rate as well. This dual dynamic brings us back to a level equilibrium.” Masone told delegates at the 2023 EuroFinance International Treasury Management conference .

As interest rates rise, companies often face financial strain, with increased borrowing costs impacting their bottom lines. However, recognizing the higher returns on investments in a high-interest environment, Amazon’s treasury team leverages this to their advantage. This perspective allows them to use their liquidity to balance the higher costs of debt, turning a potential challenge into a strategic opportunity.

Amazon’s response to rising interest rates also includes managing a portion of their investments in-house. This signals a level of financial autonomy, stepping away from relying solely on external fund managers. By taking more control of investment decisions, Amazon is able to respond to market dynamics, and more effectively optimise cash flow management. This internalisation of investment management is not just about seeking better returns; it’s also a proactive measure to help mitigate risks in a volatile interest rate environment.

“Taking control of our own investments in some cases has proven to be beneficial. Previously, we leaned more on third parties for fund management, but now, we’re utilising our in-house capabilities more. This, coupled with advanced forecasting technologies, is helping us to proactively manage our investments, particularly in longer-term scenarios,” Masone said.

Masone emphasised the importance of this approach in the context of recent financial sector disruptions, such as the collapse of Silicon Valley Bank. Amazon’s treasury team is focusing on safer investment avenues like money market funds and U.S. Treasuries, prioritising the security and liquidity of their assets. This reflects Amazon’s broader financial philosophy, which places a premium on maintaining stable and secure financial reserves, ready to withstand market fluctuations.

Under Armour’s treasury evolution: From risk management to growth facilitation

Mack Makode, Under Armour VP and Treasurer, has steered the company’s treasury department through a significant evolution. Moving beyond a traditional focus on risk management, the treasury team now plays a vital role in fostering business growth. This transformation reflects a broader trend in corporate finance, where treasury departments are increasingly becoming strategic partners in shaping a company’s growth trajectory and investment decisions, including capital allocation, while maintaining an optimal capital structure.

Under Armour’s treasury operates on four levels: operational, tactical, strategic, and business contribution, each playing a crucial role in the company’s financial management. The operational level ensures seamless daily financial activities, crucial for maintaining the company’s fiscal health. At the tactical level, the focus shifts to addressing immediate financial challenges, requiring swift and agile decision-making to handle short-term risks and seize opportunities. As Makode told delegates, “Once a team can master operational and tactical execution, you can build in the freedom to shift towards broader strategy and financial matters, ultimately aligning treasury’s actions with the company’s broader goals and vision.”

Most crucially, the treasury transcends traditional boundaries at the business contribution level, playing a pivotal role in propelling the company’s growth and building shareholder value. A key to this expanded role is the culture of empowerment within the treasury team. Rather than adhering to the traditional image of treasurers as risk managers, this structure cultivates the team to be flexible and strategic.

Mattel’s journey in global treasury operations and risk management

Mattel’s business and financial journey exemplifies the evolving role of Corporate Treasurers in contemporary business. Over her three-decade tenure at Mattel in variety of senior finance leadership roles, Mandana Sadigh, SVP and corporate treasurer, witnessed and contributed to the transformation of Mattel’s business and global treasury operations from a traditional financial overseer to a strategic business partner, navigating through various challenges and leveraging opportunities to drive growth and stability.

Central to this transformation is the fundamental understanding of business operations. Sadigh’s philosophy, emphasising the necessity to learn the business from the ground up, has enabled Mattel’s global treasury function to transcend its traditional boundaries. This approach has been crucial in allowing the treasury team to anticipate market challenges and to influence critical capital allocation decisions.

The global treasurer’s role in risk management at Mattel further illustrates the expanding scope of corporate treasury function. Managing a spectrum of risks, including liquidity, foreign exchange, and country-specific risks, alongside overseeing insurance and credit risk, the treasury has evolved to function akin to a chief risk officer.

“The role of a corporate treasurer aligns closely with that of a Chief Risk Officer, primarily because our foremost responsibility is managing the company’s liquidity risk. Day in and day out, ensuring the company has sufficient liquidity to invest in the business and weather any storm is paramount, and arguably the most critical aspect of our job.” Sadigh told delegates at the conference.

Furthermore, the treasury’s approach to cash and liquidity forecasting and operational management underlines the importance of technological integration and informed decision-making in modern treasury functions. Utilising treasury management systems for foundational tasks, combined with a deep understanding of the business, Mattel’s global treasury operations team has balanced technological efficiency with strategic business insights.

Treasurers as trailblazers

There has been a significant shift in the treasurer’s role within modern corporations. Gone are the days when treasurers were seen merely as financial gatekeepers. Today, they are recognized as key strategic players, vital in guiding their companies through economic challenges and towards new opportunities for growth and resilience.

This transformation underscores the evolving nature of corporate finance, where treasurers are now at the forefront of embracing innovation, managing risks, and driving sustainable growth. It reinforces the idea that treasurers, with their strategic insight and adaptability, are essential to navigating the complex waters of the global economy and shaping the future of their organisations.