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  • treasury management systems

Healthcare’s Return on Treasury Investment

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Healthcare and pharma companies have played a leadership role in response to the COVID-19 pandemic. Their ability to respond to the crisis was determined by the work undertaken by their treasury teams, both during and – crucially – before the outbreak.

The COVID-19 pandemic put treasurers around the world under the spotlight. For those working in the healthcare sector, the scrutiny was fierce. Not only did they have to shore up their balance sheets, but they also had to make liquidity quickly available for investments into COVID-related research and production. That leading pharma and healthcare companies were able to do this, is largely down to the investments they had made in their systems in the years leading up to the crisis.

Netra Kumar, Senior Treasury Officer, Bank of America

“During the pandemic, pharma and healthcare companies stepped up and acted with speed, agility and compassion,” said Netra Kumar, Senior Treasury Officer at Bank of America. “Critical to their ability to do this, was their treasurers’ ability to deploy capital at the right time, in the right place, and in the right currency.”

The first task of many treasurers in March 2019 was to rapidly increase the accessibility and visibility of liquidity wherever it was in the world. “At Pfizer we were fortunate to come into the situation with a very strong balance sheet, a strong credit rating, very low levels of leverage, and a significant amount of liquidity that the company could access,” says Brian McMahon, VP & Assistant Treasurer of Pfizer Inc. “This coincided with a time when the company was investing quite heavily in relation to developing a vaccine and so we had significant expenditures on both the capital expenditure side building out the manufacturing capabilities, and on the research and development side.”

Visibility and Liquidity

Having strong cash flow forecasting capabilities proved to be one of the best ways of coping with the extreme volatility caused by the pandemic. Pfizer had had a working capital initiative underway since 2013 and had refined its process for forecasting operating cashflow. “Our in-house developed approach to cash flow forecasting has proven to be quite effective with the volatility in our P&L,” says McMahon. “We had invested quite heavily in visibility and data analytics, prior to 2019. And not only did we have increased cash visibility, but we have also developed a forecasting functionality for local market entities, which has allowed us to access a lot of our cash that was in the local markets.”

For Medtronic, the arrival of the pandemic and associated lockdowns coincided with its fiscal year end in April 2020, which is generally a time of balance sheet strength. But “even with the strength of the balance sheet, given the uncertainty, we made the decision to raise a bank loan,” says Benjamin Wood, Senior Treasury Director at Medtronic. “And so, we had extra liquidity on our balance sheet for that period of time, to be able to respond quickly to whatever scaling was needed with our ventilator production.” Meanwhile, another medical equipment manufacturer reported borrowing hundreds of millions of dollars to invest in two new factories that made 12 different rapid COVID tests.

Brian McMahon, VP & Assistant Treasurer, Pfizer Inc

Medtronic was also able to reap the benefits of work undertaken prior to the pandemic in improving its global cash visibility through the implementation of a treasury management system (TMS). “At the beginning of the pandemic we were probably about 75% of the way through our TMS implementation, which we completed during the pandemic,” says Wood. “What we really invested in and what was really important to us with our TMS implementation was getting global visibility of all of our cash. Historically that may have happened once a month, but we wanted to make sure that we could have daily visibility of our operating cash. This would allow us to know where there might be shortfalls, where we might have excesses and then quickly mobilise teams to move these from one location to another.”

One further aspect of the response to the pandemic and the lockdowns was finding ways to explicitly support suppliers either through supply chain finance, dynamic discounting, or invoice finance. This in turn would require extra liquidity on the balance to support these initiatives. “Because of some of the perceived or anticipated supply chain constraints, we also wanted to make sure that we had cash available in case we needed to support some of our suppliers,” says Wood.

Technology Rollout

The use of technology and data to enable automation is the foundation from which the treasurer’s role has scaled in recent years. This is not just true of helping healthcare companies to meet the challenges of the pandemic, but also more broadly for treasury teams in any number of sectors.

For Pfizer’s McMahon, data visualisation dashboards may have played a core role during the pandemic, but the race for new tech continues. “As we see a further rollout of cloud technology in our data, we have to continually adapt those in order to stay abreast of all that”.

Benjamin Wood, Senior Treasury Director, Medtronic

Medtronic’s Wood highlighted the growing need for data science skills in treasury, including “the ability to query large datasets, swim in that data lake and really work out the insights there”. These new skills are pushing treasury in more of a strategic direction, he noted.

“Over the past few years, we have seen the role of treasury evolve and treasurers taking on a more advisory role on several strategic initiatives, whether it’s working capital advisory, M&A or even ESG related matters,” concluded Bank of America’s Kumar. “Treasury also provides input on the growth / risk trade off.”