Proactivity amidst volatility: A deep dive into BMS’s strategic response to a shifting macro-economic landscape
The treasury team at the global biopharmaceutical company, Bristol Myers Squibb, won the 2023 EuroFinance Treasury Excellence Awards in the Risk management and resilience category.
In a testament to the constant dynamism of the business world, the first half of 2022 bore witness to drastic changes in the macro-economic environment. A period of historically low interest rates quickly evolved into an era of skyrocketing interest rates, fueled by unprecedented inflation and geopolitical tension in the Russia-Ukraine region. Amidst this whirlwind, the treasury team at the global biopharmaceutical company, Bristol Myers Squibb (BMS), boldly faced the challenge, skilfully morphing it into an opportunity that bore fruit in the form of positive P&L and cash flow.
Financial risk in a changing landscape
The volatile economic landscape had significant implications for BMS. Currency volatility (with the USD strengthening), compounded with the threat of rising debt costs in the event of new strategic or operational debt needs, painted a picture of high financial risk. The situation was further complicated by BMS’s significant acquisition of Celgene Corporation in 2019. This acquisition, one of the largest in pharmaceutical history, led to a doubling of the legal entities, worldwide operations, and more importantly for the treasury team, the presence of two ERP systems. The balance sheet FX risk surged, and daily FX rate use for balance sheet remeasurement meant every day without hedging activities posed an FX P&L risk.
Despite these complexities and the existing constraints of manual processes in a lean treasury organisation, BMS decided on a calculated risk: to automate. A solution was found, which could be implemented on the BMS entities and automate the identification of exposures, trade requirements and journal entry booking in the ERP systems. This ambitious move was a testament to the BMS treasury team’s proactive thinking and innovative problem-solving capabilities.
As 2022 progressed, the treasury team’s strategies began to show their positive impacts. One significant move was the issuance of $6B in debt, using the proceeds to strategically repurchase $4.5B in existing bonds maturing during 2025-2029, thus freeing up cash flow for investment in pipeline enhancements, and new product launches to support the company’s growth strategy. The remaining $1.5B was directed to repurchase high-interest bonds, generating interest savings and a positive P&L impact.
Another notable strategy was the acceleration of the 2023 cash flow hedging program. By Q3 of 2022, a substantial portion of the company’s 2023 FX exposure had been hedged. The treasury team also introduced the use of purchasing FX options to capitalise on potential dollar weakness for longer dated cash flow exposures. Simultaneously, the team executed a cross-currency swap strategy to hedge the net investment in six currencies, leading to expected interest expense savings for 2022 and 2023.
The team also implemented a comprehensive system to aggregate daily FX exposures from two ERP systems and hundreds of legal entities which was instrumental in expanding the hedging program to over 20 currencies and allowed for daily hedging, with straight through processing to the competitive trading platform and the electronic confirmations platform. This move effectively quantified and managed risk, thereby solidifying the robustness of BMS’s treasury management.
In hindsight, BMS’s treasury team’s success was built on boldness, timing, and innovation. The team’s ability to take decisive action quickly, coupled with strong support from treasury leadership, a commitment to automation, and a culture of innovation, were the essential ingredients in their triumph over a challenging environment.
On a global scale, the creative approach to BMS’s capital structure and hedging strategy holds tremendous relevance. By swiftly navigating the volatile economic landscape, BMS can continue to deliver ground-breaking drugs to patients, investing in clinical trials, product launches, acquisitions, and licensing deals.
Indeed, BMS’s bold response to the macro-economic challenges of 2022 paints a vivid picture of a company that does not merely weather the storm, but harnesses its energy. Their actions highlight a commitment to innovation, agility, and efficiency, but more importantly, they demonstrate an unwavering commitment to their mission – to deliver promising treatments to the patients who need them the most.
The robustness of their treasury operations, their strategic restructuring, and their automation initiative can serve as a valuable lesson for many organisations worldwide. BMS has shown that in a volatile economic landscape, proactivity, creativity, and a strong focus on automation and process optimization can not only mitigate risks but also unlock valuable opportunities.
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