What are the key responsibilities of the treasury?
The core functions of BillerudKorsnäs’ treasury are cash management, financial risk management, liquidity and funding. In terms of financial risk, we are particularly involved with managing exposure to FX and interest rates — and commodities.
But we also have a more central role, which is perhaps not always the case for treasuries at other companies. For example, we get involved in strategic discussions on the business plan, debt capacity, capital allocation and the group’s communicated financial targets. We have managed to be close to our senior management team and support them in many areas.
Have your priorities changed over the last ten years?
Our priorities have definitely changed — but it has been a natural development. In 2012, we acquired our Finnish operation and Billerud merged with Korsnäs. That naturally put a big focus on funding.
We have worked actively with the debt and cash management structure since then and have a reached a point where we have a very efficient structure. During the last twelve months the focus has instead shifted towards re-evaluating our finance policy, including financial risk management.
We sell a lot in euros and US dollars and we need Swedish kronor (SEK) to pay our bills. So it is easy to see that we have a financial risk around fluctuations in these exchange rates. But we realised that we need to take the analysis a bit further. Financial risk management is challenging as there are several moving parts. If you isolate and try to manage one variable such as the exchange rate risk, you might counterintuitively create more volatility. For example, if the price of your product and the exchange rate tend to move in opposite directions you have a natural hedge. If you then hedge the exchange rate you will instead have greater revenue swings. So we are now looking at a more strategic approach to hedging. We have created a central hedging committee, which I sit on alongside our CEO, CFO and Treasury Manager. We meet to discuss and set our hedging strategy for the company at least every quarter.
Because we are now more stable, we should be striving to hedge less. But right now — as you can see from our quarterly report — we have decided to hedge a lot. We have got strong tactical reasons for this — we are locking in competitive advantage. By hedging while the EUR:SEK rate is high we are giving ourselves a mid-term advantage over our competitors. We have taken the opportunity to hedge when the exchange rate is favourable.
Nearly 70% of treasuries expect to be hedging more interest rate risks in two to three years.
Nordea Treasury 2017 report
What is the most important function of the treasury: executing transactions or providing strategic advice?
The key to the success of the treasury is making things work in terms of funding and cash management. That is the backbone of our operations. We need to make sure we have money when and where the company needs it.
But you can try to make this as efficient as possible. And that then gives you the scope to put more resources into qualified strategic support to management. That is when you can really start adding value.
How have you realised these efficiencies?
The transition to SEPA (the Single Euro Payments Area) helped us to close down many collection accounts across Europe. And we have introduced an extremely efficient cash management system, with a central cash pool in Stockholm. Of course, we have got some excess liquidity in the organisation — but we are almost as lean as you can be.
How is your treasury structured?
We work hard to be lean. We have tried to simplify processes and avoid complex intra-group dealings.
The treasury comprises five people in total. We have three employees — a cash manager, a financial risk manager (treasury manager) and me — in what you might call our “classic” treasury function. We have to be very individually driven and have a very broad set of skills. We have a further two employees in our credit risk team.
Do you expect the treasury to grow?
If anything, we will try to resist growth of the treasury as long as we can. If we take on more responsibility — say more work in trade finance or credit insurance — we might grow in FTEs. And business growth — say we acquire a production unit outside of Europe — would add complexity and might demand additional staffing. But we are aiming to stay as lean as possible.
Is improving working capital management a key objective for the treasury?
Across BillerudKorsnäs, we are currently running a group-wide working capital management programme headed by the finance function. We are looking to decrease working capital and squeeze more cash out of the company. That will leave us with an even leaner structure with less capital employed.
You can do some relatively easy things, such as signing agreements with banks and suppliers to remove some of the working capital you have on your balance sheet. But a working capital reduction programme is something else. You need to involve every part of the organisation. You need to chase all the money you can from wherever it is. You need to shorten your order-to-cash cycle and extend your purchase-to-pay cycle.
As part of the project, we have looked at some supply chain finance programmes to achieve better working capital. This has included assisting our suppliers to borrow cheaply on our balance sheets. We are also in discussions with customers about joining their supply chain finance programmes. There is a lot of action in this area right now.
Nearly 50% of treasuries believe that participating in strategic decision-making will be of high importance by 2017.
Nordea Treasury 2017 report
What other areas are you focusing on at the moment?
Trade finance is a big focus area for us. This does not always fall under the treasury’s remit but is essentially a means of managing credit risk while enabling trade and adding value to our customers. As one of the largest exporters in Sweden, this is a very important area for us.
Technological developments in the last couple of years have made it affordable to connect with the banks through SWIFT. This system has come a long way, although we would like to see the banks and SWIFT working harder to improve this connection and make it more efficient. Nordea is one of the front runners in the Nordics in this area.
We have got a lot of work to do to get closer to customers and their banks. Trade finance is an area where you can make big efficiency savings on administration and repetitive tasks, and focus on the value-add. We see huge potential for that, particularly with the multi-banking platform we are setting up right now. This will help us to prepare documents for letters of credit automatically and help us with the entire workflow. That will free up time to work more closely with our salespeople and customers, and to build an international network of partner banks.
What are the biggest challenges facing the treasury?
There are a lot of regulations hitting our banks and us, and the financial arena is changing. In Sweden, we are now facing the challenge of negative interest rates that, apart from lowering our interest payments, has other effects. We need to be light on foot and quick to react to these challenges, and understand their importance. Our biggest challenge is being able to navigate in an ever-changing world.
With thanks to Per Norman, Head of Treasury and Risk Management, BillerudKorsnäs
Per joined Billerud in 2008. He initially worked in business development and then for the company’s container-board unit before taking a role centrally with mergers and acquisitions. In parallel with the Korsnäs merger in 2012, he took on his current role as Head of Treasury and Risk Management.
Photo source: BillerudKorsnäs
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