How Kraft Heinz’s treasurer steered the company through the pandemic
Due to skyrocketing demand and panic-buying, global food companies like Kraft Heinz were on the frontlines of the pandemic. Steering such a company through these challenging times required a special breed of treasurer. That person was Yang Xu, who by sheer determination worked her way up from a modest upbringing in China to become head of group treasury at the multinational.
There’s no doubt that treasurers have had an interesting pandemic. Even more interesting when you have to service approximately $30 billion in debt that saw its rating lowered into sub-investment grade, as Kraft Heinz did in March 2020.
“At Kraft Heinz, because of the debt quantum, treasury has always had a strong voice, in terms of the strategic priorities and the dialogue with the board and executive teams,” Xu told EuroFinance. “But this crisis absolutely has put the Treasury team in the spotlight, just because we’re close to the bloodline. You know, cash is king – that is really the lifeline of many companies.”
She echoes the views of her peers in highlighting liquidity. “The most important thing is to safeguard the liquidity – not only when the market is good, when the banking relationship is good – it’s to always be prudent and always be proactive in terms of what can go wrong.”
Xu recalls the dialogue when the pandemic first struck. “The first question is, what’s happening? Do we have enough cash? What if you just have to shut down all the plants? What if there’s no trucks anymore? Because people initially could not drive and fulfil your supply chain. And how much cash do we have on hand? How long can you sustain?
At such a moment, only treasurers have the insights to pull levers and save a company. “Where can we pull the cash if an emergency does come?” Xu says. “We look at the emergency funding such as a revolver, and what the covenants allow us to do in such extreme situations”.
It’s also their job to stanch the bleeding of cash. “What are the key items that will be cash out the door?” observes Xu. “Where can you renegotiate the term when it comes due? Are there other cash collections that we can accelerate?”
Xu points to the risks of derivatives when price swings can cause large collateral payments to counterparties. “When certain derivatives mark to market are they in the money, out of the money and what can go wrong?”
If Xu has a mantra, it would be, “Let’s do things proactively even if we aren’t necessarily under the gun and have to do them.” A good example is Kraft Heinz’s debt. While other companies increased borrowing during the pandemic, Xu’s company managed to reduce it by some $5 billion in recent quarters, especially its near-term debt – though she concedes that it was somewhat helped by the pandemic-induced demand for the company’s products like ketchup or mac-and-cheese.
However, achieving such a reduction required a laser-like focus. “We always thought it would be prudent to manage our debt profile, tendering our near term debt, basically pushing the maturity further out, not because we were smart enough to foresee a crisis was in horizon, but just really because it was was the right thing to do”, Xu explains.
“So when you look at your maturity tower, you keep it so that it’s a digestible size at all times”, she adds. “And we have been very prudent also to fund the off-balance sheet liabilities, such as pensions, such as post retirement medical. That put us in a much better situation.”
Another treasury function that Xu urges her peers to think about proactively is bank relationships. “I think bank relationship management is actually more strategic than what people give credit for. So one of the treasurer’s superpowers is, how we strategically allocate a wallet, in accordance to people’s capital commitment.”
Treasurers need to decide whether banks are fair-weather friends, or will stick with a client during tough times, notes Xu. “It’s really critical to evaluate if the business footprint has a meaningful overlap, and therefore, in the long term, the relationship makes sense.” For Kraft Heinz, the approach paid off during the pandemic, she adds. “We actually extended our revolver for one more year with precisely the existing terms and conditions and favourable covenants with no questions asked”.
Working capital management is another time-intensive activity. “So we look at receivables – can we accelerate them?” Xu says. What are the terms, what are the trade offs on an ongoing basis? And what is the emergency fund you can tap into – should you put in place a factoring line or should we participate in some Supply Chain Finance with our biggest customers? In terms of payables the same conversation, but on the flip side.” The toughest nut to crack? Working with operations teams to reduce inventory.
All this has been going on at the same time as Kraft Heinz undergoes a major digital transformation, ranging from building e-commerce infrastructure, to automation of cash management, along with a major focus on cybersecurity. “This pandemic, actually, in a nice way, didn’t change the strategic direction that as a company we were trying to go, but as a matter of fact, has accelerated the pace.”
Yang Xu will be speaking at the upcoming International Treasury Management Virtual Week taking place from Sept 27-Oct 1. Click here to find out more and register free for a corporate treasurer ticket.