Treasurers dealing with multiple jurisdictions, scattered banking landscape, and local requirements face many challenges in this regard. Japan is one of the markets where bank connectivity is indeed a challenge, especially when it comes to connecting with local banks.

Traditional options

The initial reaction from treasurers not familiar with local market conventions might be to seek connection through the SWIFT network. However, in Japan only a handful of banks offer SWIFT connectivity. Second natural choice is the Host-to-Host connection (H2H). This is the classic File Transfer Protocol (FTP), or preferably the secured version (sFTP) setup. Some will say old fashioned, rather than classic, since it is as old as the internet. Nonetheless, it is still popular, and frankly quite often the best fit for the purpose. However, if there are dozens of local banks to connect to, it can be difficult to be expected to connect to each of them with a direct H2H. While this could be technically feasible, it would be nothing short of a nightmare to maintain, with the initial setup being time-consuming in the first place.

Other solutions

There is an answer, or should we rather say ANSER, to this question. ANSER, an abbreviation of ‘Automatic answer Network System for Electrical Request’, is a data transfer system provided by NTT Data Corporation since 1981, which links banks with firms.[1] ANSER then is a way to connect a corporate client to the bank. The system has been around for a while, and together with Cash Management Service (CMS) centers it is a part of the so-called Firm Banking solution in Japan. Since its inception, ANSER offered a wider range of services, through which corporates could access their banking information. Among the offered channels are telephone, fax, firm banking terminal, and personal computer. With the ever-increasing need for speedy and accurate information exchange, the more traditional ways, such as telephone and fax, gave way to the more sophisticated and automated solution, namely eBAgent.

eBAgent making use of API

The said eBAgent is a proprietary middleware platform offered by NTT Data. The solution establishes an automated connection with banks through the above-mentioned ANSER network. In short, eBAgent offers a gateway to multiple local banking partners in Japan utilizing the ANSER network. The remaining part for the corporate is then to establish a connection between the TMS and eBAgent, and secure appropriate contracts with the eBAgent provider, NTT Data, as well as the banks.

As for the connection protocol, the choice is between the classic sFTP, or Application Programming Interface (API). The latter has the real-time advantage, with less lag between the pick-and-drop sFTP connection. API seems to be a choice for an increasing number of corporates these days in this area. What is also interesting, apart from the API connection, are the supported formats for transfers and bank statements. In addition to the local Japanese ZENGIN, the protocol also offers data transmission in a proprietary XML format. This XML format is actually quite simple, with a very limited amount of tags. In addition to this, unlike the ISO 20022 standard, it contains only one level of tags, without the nesting function. Depending on the exact ERP/TMS infrastructure, eBAgent can also provide conversion services from and to the IS 20022 standard. As for the connection to eBAgent, the whole setup seems easier said than done. However, some TMS providers, in response to the demand from the market, started offering off-the-shelf solutions for a plug-and-play connection to eBAgent. Kyriba and Reval already offer it, with SAP set to roll out its solution on the S/4HANA and Multi Bank Connectivity (MBC) platform in early 2024.

Various ways to connect TMS / ERP with banks in Japan

How to connect with local banks in Japan?

It all depends on the exact landscape of banks and systems. It may just as well turn out that a hybrid solution would be best suited. There is no one-size fits all, as each corporate is unique, thus careful consideration and design will be paramount for a stable and reliable connection with banks. One thing is certain, solutions that involve obtaining bank statement information and enact payments by telephone or fax are simply no longer sufficient. In this day and age, when much sensitive information is exchanged between corporates and banks, having a reliable, automated solution is indispensable.

If you would like to know more, do not hesitate to get in touch with Michal Zelazko via m.zelazko@zandersgroup.com or via + 81 (0) 8 3255 9966

[1] https://www.boj.or.jp/en/paym/outline/pay_boj/pss0305a.pdf

With more than 235 million customers worldwide spread across a diverse group of countries, VEON's business is complex in nature. As a consequence, the organization instigated a large-scale transformational program in 2016, in order to take its financial function to a higher level. This also meant a radical change process for treasury activities.

VEON consists of a large number of separate telecommunications companies (telcos). From its head office in Amsterdam, the multinational provides telecommunications and digital services, with different local trademarks, in countries that include Italy, Pakistan, Bangladesh, Algeria and various CIS countries, such as Russia, Ukraine, Uzbekistan and Kazakhstan. Shares in the company are traded on the Nasdaq in New York and Euronext in Amsterdam.

More than mobile

In recent years, VEON has taken over several telcos, but also sold off others. “We are focusing on a number of key markets, where we want to be number one or two,” says Maarten Michalides, director of corporate finance at VEON. “When, for example, we took over a large Egyptian company, GTH, we immediately divested various parts of it located in a number of more southern African countries.” As an example, VEON is the market leader in Pakistan. In addition, the company has a local banking license and, therefore, provides financial services as well. “In such countries, relatively few people have a bank account,” says Michalides. “Because, in terms of systems, the telecoms infrastructure is very similar to that of a bank (we also have customers' name and address data and account balances), and customers are paying with their mobile phones. It is therefore only logical that telcos have a competitive advantage with regard to financial services. We provide them in Pakistan, but also in countries such as Russia and Ukraine.”

In addition, VEON focuses on developments involving new digital opportunities and enables customers to access all kinds of services via the VEON app. This is an important growth strategy for the company, says Michalides. “The growing capabilities of telephones increasingly enable, not just local, but also international service providers to enter the market. Our aim is to progressively transform from a traditional telecom company to digital service provider.”

Transformational program

As a result of this strategic change, VEON faced a major challenge: the entire finance organization had to become more cost-efficient, more standardized and more business-focused. Part of this plan was the centralization of the operational finance activities in a number of shared service centers (SSCs), which had already started. “This was necessary not only for the sake of efficiency, but also from a quality and control perspective,” explains Michalides. Spread across various countries, more than 40,000 VEON employees were used to working with their own systems and according to their own procedures and processes. “This generally works well on a stand-alone basis, but in the end it is logical for a large international group to harmonize,” he adds. That is why in 2016, when the company was still called Vimpelcom, it launched a large-scale program to transform its finance function.

This broader project made it necessary for the treasury team to initiate a treasury transformation project in order to design a new Treasury Global Operating Model (TGOM), in which the treasury organization, processes, supporting systems and activities were redefined. In other words, the various treasury departments within VEON were to become uniform and harmonized on the basis of this TGOM.

Local presence

As a consequence, the entire company is currently undergoing a transformation phase, says Michalides. “We are moving towards more central purchasing, implementing a single ERP system that everyone in the organization will use, and we are setting up new SSCs in a number of places, merging overlapping operational activities. This is occurring one step at a time and cannot be done quickly, due to certain factors including regulations and the company’s history. Treasury cannot be left behind in this transformation. With about 150 people, our treasury organization seemed huge, but half of it was actually Accounts Receivable or involved in other financial-administrative services.”

VEON uses more than 100 banks and 1,000 bank accounts. Local bank accounts and relations are really necessary in many countries, notes Michalides. “In some countries, we have to set up the financing locally, as local approval by banks and governments is needed to get things done. Local legislation and status of the banking system therefore make it difficult to centralize. This also means that we cannot simply cut back from 75 to 10 treasurers, as would be possible for a telco operating in the West. We are going to reduce the number considerably, but it is more important that we have a grip on the operation, so we know exactly what happens, when and by whom. That is the primary goal in the treasury project that we are undertaking.”

Open-heart surgery

When this project was identified, Michalides' department went in search of support. “We knew, for example, that our current treasury management system (TMS) was no longer going to help us and should be renewed. We knew that it was necessary to gain more control over the treasury activities of the entire company. We also knew that the rest of the company was working on a finance transformation. Working with the group treasurer, I proceeded to identify a consulting company that was completely dedicated to treasury – hence not distracted by other services such as accountancy, software and the like. Personally, I had good experiences with Zanders when working at Heineken and Corio. We made an appointment and received a convincing presentation, clearly showing how much experience they already had with regard to treasury transformation. We had known for a while that we had much to do and that it would be far-reaching. And, if you are undergoing open heart surgery and are vulnerable, it is nice to know that the surgeon can recognize what he is going to see and knows exactly what he is doing. It was therefore an easy choice for us.”

A new treasury system

A number of important steps were taken shortly afterwards, starting with a review and assessment of the current treasury organization, processes and systems in all relevant countries as well as at group treasury level. Then a preliminary treasury global operating model was defined and a fit-gap analysis was performed to assess the current state of treasury and what needed to be done to reach the target state. “We subsequently arrived at a blueprint and a roadmap of what the treasury function should look like between now and a few years hence,” explains Michalides. “This took place with proper consultation and a great deal of local involvement. Despite the fact that each country manages treasury in its own manner, the outcome has become a uniform plan that is supported and recognized by everyone.”

This plan indicates that the various treasury departments will have to operate more in accordance with shared principles, while taking into account the many local requirements and restrictions on currencies, tax and central bank rules. A crucial part of the TGOM is a crystal clear definition of the vision, the objectives and the scope of treasury within VEON, as well as clear policies and procedures, and the definition and assignment of roles and responsibilities at all levels within the treasury organization.

Michalides says: “In addition, the use of our treasury system turned out to be too non-committal, so we have defined a vision for a new single TMS; one system that can be managed centrally, communicates well with other systems and is therefore not without obligation. In the end, we want automatic payments and accounting, which means that control will also run faster and more effectively.”

“Viewed from a treasury perspective, the intended new system needs to support the entire process end-to-end,” Zanders consultant Job Wolters explains. “This means that, after logging in, you immediately see the current financial positions, and recognize the financial risks that exist. You can use it to analyze, provide support for decisions and execution, and to record your financial transactions – and then you have the link to accounting, the banks and reporting to senior management.”

Relevant streams

The selection of the new TMS is a very important cornerstone of the TGOM implementation project, Michalides emphasizes. “The organization and processes at the various SSCs must function in a more streamlined manner.” In addition, the team is busy setting up an in-house bank, an entity in Luxembourg that will act as the SSC for the corporate head office in Amsterdam, which operates more as the strategic function. The SSCs have the execution function, while Luxembourg has to play an exemplary role for the various local treasury departments. From Michalides’ young, international team, someone is involved in every project stream: the TGOM implementation, the TMS implementation, a bank rationalization and a cash flow forecasting project.

“The project is being undertaken by VEON and Zanders,” says Michalides. “It has been well thought out beforehand, allowing it to be executed in logical steps – an integral approach. For the overall project, we appointed an internal project manager, who provides support from VEON to Zanders, helping to find their way through the organization. This turned out to be a brilliant move, which is working very well. Since we are constantly being overtaken by the issues of the day, we ourselves cannot give the support that such an important and far-reaching project needs.”

Involving all countries

The role of treasury in the more general sense has recently changed within organizations, notes Michalides. “Especially with regard to systems and processes. More and more companies are centralizing the treasury function. This is also a logical move once you become more internationally active, an expansion that requires more centralization and therefore transformation as well. However, VEON is also a special company in this area; there are few Western companies with such a deep-rooted presence in complicated countries. Our offices have really grown out of their local environments.”

Looking back at recent developments, Michalides has some tips for other treasuries: “The success of a large complex project is mainly about good preparation. In addition, the involvement of the countries where you are established has proved to be very important. You must take your time for that, and remain well aware of their situation and processes. People appreciate it very much when they are involved in something so important.”

Would you like to know more about treasury transformation? Contact us today.

“In which fields is it still possible to add value from a treasury point of view?” That was one of the questions LyondellBasell’s director of financial risk management, Frank van Es, asked himself when he reviewed the activities of the treasury department. As a result of his question, LyondellBasell analyzed its commodity and currency risk exposure with a Cash Flow at Risk (CFaR) study, which was conducted by Zanders.

Unprecedented volatility in financial markets has made corporates more aware of the importance of sound risk management. Events such as the so called ‘Brexit’ referendum on the 23 June 2016, after which stocks, commodities and currencies fluctuated by about 10 percent, could be harmful for the daily business operations of corporates.

Potential Cash Flow

While managing credit and market risk is a core competence for financial institutions, corporates are exposed to a myriad of financial risks (including FX, interest rate, and commodity price risk) as a result of their business operations. An important difference between financial institutions and corporates in terms of risk management is that financial institutions consider the risk in terms of portfolio value and balance sheet fluctuations, whereas corporates prefer to measure the risk in potential cash flow and profit downfall. Some corporates accept financial risks and have a reactive approach, while others create a competitive advantage by mitigating risk with strategic corporate risk management. With financial derivatives and risk transfer contracts, corporates can reduce risk and create value from a business perspective.

Commodity and Currency Risk

LyondellBasell is one of the world’s largest plastics, chemical, and refining companies and a member of the S&P 500. It is a traditional manufacturing company with a wide range of production possibilities at its 57 sites globally. For risk management purposes, the business of LyondellBasell can be simplified to the procurement of feedstocks needed in multiple manufacturing processes and the sale of finished products to its clients, i.e. mainly the purchasing of oil derivative products and selling intermediate chemicals and plastics. Coming with the purchase and sales, market price risk is introduced in the form of commodity and currency risk.

LyondellBasell has conducted several risk studies in the past to quantify the risks in their business model. Due to changes in the company and the petrochemical market, such as the change in pricing structure from quarterly to monthly price quotation, as well as changes in assets and products produced, LyondellBasell decided to conduct a limited CFaR study to better reflect its current business models. Besides quantifying the financial risks, the company wanted to explore further applications for strategic decision-making in order to reduce risk by hedging exposures or revising business models.

Worst Case Scenario

CFaR is a widely adopted method to quantify risk and is highly suitable for corporates. The CFaR measures, with a given probability, the unexpected negative movement of the cash flow. While being used to measure the potential cash flow downfall, the CFaR can be interpreted as a ‘worst case scenario’. By forming a risk appetite, a corporate could decide if the measured risk is acceptable or if it exceeds its risk allowance. To reduce risk, hedging strategies can be evaluated using scenario analysis. Hedging involves corporates purchasing financial derivatives to insure against unfavorable price movements.

To test the impact of such a decision, the risk measurements could be calculated in a ‘what if’ scenario under the strategic decision. The comparison between the scenarios with and without the hedge provides insight into the risk profile and costs of the strategic decision. The corporate could then decide if it is worth the costs to reduce the risk.

Key Risk Factors

The project at LyondellBasell started by mapping out a portion of the business to determine how cash flows are formed and how they interact with each other. Zanders translated purchases and sales systems to a measurable cash flow. Such mapping is useful for many corporates as these links are not immediately clear and are hidden within the organization. This is often caused because operations at corporates are divided into several divisions, such as purchase and sales divisions. Therefore, it is easy to lose visibility of the company’s cash flows.

Once this insight is created, the key risk factors which mainly impact the cash flows can be identified. It is important to distinguish the key risk factors since it is not feasible to model the entire company. After deciding which risk factors are incorporated, the CFaR can be measured using a Monte-Carlo simulation method. This method models the commodity prices and exchange rates with an econometric model and simulates future price paths.

By simulating many price paths, say 10,000 times, a large dataset is created where the worst-case scenario is evaluated to determine the risk and correlations between individual risks. The analysis was in line with Van Es’s expectation about LyondellBasell’s risk exposure. He says: “The model confirmed our gut feeling about our risk exposure and validated the correlations between commodity prices and exchange rates.”

Applications for Strategic Decision-Making

Together with LyondellBasell, Zanders took the next step towards strategic decision-making using its own customized risk model. In general, stakeholders are always initially skeptical about the idea of treasury getting actively engaged in the business. However, at LyondellBasell, they learned that although the model is a simplification of reality and should not be followed blindly, it can be used as an indication for business decisions. There is now more support and acceptance at LyondellBasell since the model helps the company to understand their figures and it verifies their ideas about correlation.

The business now has a tool that can help calculate the effect of production decisions on cash flows and risk, and can determine if they have to shift the business to create more cash flow stability. Zanders created applications for strategic decision-making for hedging strategies. For exposures that needed to be hedged, Van Es was interested in determining which percentage needed hedging, and whether exchange rate and commodity price should be hedged in tandem or could be hedged separately.

Correlations between market prices play an important role in making these decisions since they form a natural offset in risks. Zanders evaluated combined hedging strategies of commodity and currency and calculated the optimal hedging ratio in terms of risk reductions and costs.

Step by Step

Supported by the CFaR study, LyondellBasell is shifting its risk management into a higher gear. “There is an integration of ERM in treasury and we are creating a financial risk management department that will focus on modeling risks and developing financial strategies,” says Van Es. “We will implement hedging strategies step by step: better walk before you run. The implementation process will be challenging as we have to cross several barriers. For example, we need to execute currency and commodity trades and maybe have to set up a separate trading structure for this. There are many risks we have to manage, but we are the champions of risk management at treasury! We have shown our additional value with this project.”

Would you like to know more? Contact us today.

Canada’s largest railway set out to simplify its payments and improve reconciliation with enhanced remittance data, while also reducing IT support costs. The project will run parallel with the Canadian Payments Association’s (CPA’s) initiative to modernize the system and introduce ISO 20022 formats. So, following a thorough request for information (RFI) and request for proposal (RFP) process with the banks, the Canadian National Railway Company (CN) now has its future vision for bank connectivity and global-standard payments, as well as a multi-year roadmap to establish best practices.

‘North America’s Railroad’

CN operates approximately 20,000 route miles of transcontinental railroad from Vancouver in the west to Halifax in the east, and all the way down to New Orleans on America’s southern coast. Its market cap of US$43bn (C$57bn), as of February 2016, makes ‘North America’s Railroad’, as it’s known, the biggest rail company in Canada in terms of both network and value. The majority of business, consisting of freight, takes place in North America, but CN’s reach extends much further, with operations and transport services in Asia and South America.

The group treasury, centralized in Montreal, takes care of cash management functions and does all FX hedging and cash pooling with the two main operating currencies, Canadian dollar and US dollar. This business model meant that CN needed a bank with a strong presence in the US and Canada, as well as an international footprint. In 2015, therefore, the company started to look into streamlining its banking relationships.

European perspective on Canada

Zanders was asked to provide guidance on both the RFI and RFP phases of the bank selection process. The aim was to choose one or two relationship banks for domestic and global operations. Due to the specifics of the Canadian market, the company chose one bank for its North American operations and one for the rest of the world. Zanders was an active ‘sparring’ partner in this process and supported CN throughout the RFP, during the evaluation of responses, decision-making, and selection phases.

The vision

Paul Tawel, who was senior manager of treasury operations at CN during the RFI and RFP process, explains how the project began: “Our main goal was to get a vision of best practices in different areas of treasury, so it originally started as a ‘quest for knowledge’. On our side, we had a lot of good processes in place but we wanted to learn more about protocols for bank communication.”

The project group at CN went through a questioning process, looking at all outsourced services and how it communicated with its banks. While they recognized that many of the protocols in place were already working well, there were areas that could be improved. Tawel, who has now retired from CN, adds: “We really wanted an internal vision and we now have that – we have put in place a cross-functional task force, including treasury, accounting, procurement, marketing, and IT to implement the vision and roadmap that we have developed. We have a timeline of three years to put these changes into practice. There are separate plans for AP, collections, and treasury. On the payables side, the vision can be implemented quite quickly.”

The job is ongoing, and CN is currently drawing up an action plan for three areas: payments and collections, payment format harmonization, and bank connectivity.

World-class payments and collections

During the research phase, which took place in mid-2015, running alongside the bank RFI and RFP, it became apparent that there were areas of payments and collections that could be optimized. Cheques are still a mainstay of CN’s collections in both Canada and the US, representing 43 per cent and 62 per cent of collections volume, respectively. Meanwhile, on the payments side, there was far less reliance on cheques (seven per cent of volume of payments in Canada, 10 per cent in the US), although there was still an opportunity to reduce volumes. Another factor on the collections side was the wide variability of remittance data sent by customers. “We want to eliminate cheques as much as possible. However, in North America, they are part of the culture, and suppliers demand them. The right communications strategy will be a key part of successfully encouraging suppliers and customers to accept another digital payment,” says Tawel.

Another important consideration was the unique payments environment in Canada, explains Mark van Ommen, associate director at Zanders: “We had to take the nature of the Canadian payments system into account. One of the challenges is that they are still very much cheque-driven, mainly on the receivables side, so that is a big difference in the Canadian environment.”

CN’s overall vision for payments and collections is to rationalize payment/collection methods and reduce cheques in receivables, while also increasing the level of pre-authorized debits. On the outbound payables side, as well as further reducing cheque usage, it was decided to leverage SAP technology.

Formats harmonization

CN also wished to simplify the way it communicates transaction data with its banks. The company currently uses a large number of formats, some of which were customized, and this increases payment and IT costs. Moreover, the Canadian clearing system doesn’t permit payment messages to contain all the data necessary, so that separate files are required for remittance.

However, the Canadian Payments Association (CPA) has now launched an initiative to modernize Canada’s core payments infrastructure, gradually replacing multiple formats – often based on Electronic Data Interchange (EDI) formats – with the international ISO 20022 standard payment formats. The design phase of the initiative is expected to be completed by the end of 2016, but implementation will take several years. The CPA will also adopt Extended Remittance Information (ERI), which will enable the reconciliation of payment remittances to be automated, saving companies such as CN significant resources.

Despite the CPA’s initiative to introduce standardized XML payment formats by 2020, CN had to consider the best option in the current environment. They chose to adopt CGI payment formats that provide combined payment and remittance info, enabling more efficient reconciliation and less complexity from an IT point of view. Van Ommen adds: “We were able to provide advice based on our experience of European XML standardized payment formats. Although the non-standard payments environment in Canada is a challenge, the CPA is intent on bringing this in line with global standards.”

Bank connectivity

The multiple payment format types, along with the company’s multiple host-to-host interfaces with various e-banking systems, mean there is a raised cost in terms of IT support – the so-called ‘cost of ownership’. The more systems and types of format are used, the greater the cost of making any modification to each system. CN wanted more independence.

Zanders partner Judith van Paassen worked closely with CN on this issue. She explains that: “The ‘cost of ownership’ of maintaining the current multiple types of file formats and bank connectivity was too high. CN needed more standardization to reduce this cost and to ‘future-proof’ its treasury and payments operations. But first, treasury and IT needed to convince other departments that this would be both necessary and beneficial.”

The solution put forward in CN’s vision and roadmap was to simplify the systems landscape and number of interfaces. CN already had Swift’s Alliance Lite2.0 in place but this was only used for treasury payments and wires and, in any case, was unsuitable for the volume of commercial payments for a company of CN’s size.

Tawel explained that the aim is to adopt a standardized, bank-agnostic communication channel for all bank communications: “We want to leverage our Swift communication platform, but in future we may need a Swift Service Bureau. This will take time, and as we are already on Swift, we see it as primarily an IT project.”

A communication strategy was needed across the organization to get all departments aligned with the best practice identified by treasury and IT in the areas of bank connectivity and payment formats harmonization. Van Paassen adds: “We advised the treasury and IT teams to view this project as a long-term strategy. It was a challenge to get departments such as A/R and A/P to support this vision, but CN’s treasury succeeded.”

CN was vindicated in its long-term strategy for banking relationships, bank connectivity, and payment formats. It has already been able to reduce its banking fees significantly via the bank RFI and RFP phase and in future expects to improve security and simplify the process of making commercial payments.

Vision and roadmap

Having already selected two relationship banks and with its vision for future bank connectivity and payments firmly established, CN is now planning the initial steps along its roadmap, which will take it up to 2021. In early 2016, treasury began looking at document solution design and payment formats. Van Paassen says: “The challenge will be in the implementation, but we are confident that we helped treasury see the bigger picture, which will enable them to make the necessary changes.”

A factor that was vital to the project’s success was getting buy-in from several different teams. While some departments initially questioned the need for the proposed changes, they reached a consensus, helped by the objective, fact-based methodology used during the RFI and RFP phase and the bank communication standardization project. Irene Kwan, senior manager, treasury operations, at CN, said that at the end of the project, treasury’s vision was shared and supported across all departments. She says: “The project was well received in the company. Everyone was on board and everyone was clear about what we wanted to achieve. In my view, it would be really beneficial to carry out projects on best practices more frequently.”

Would you like to know more about bank connectivity or other treasury challenges? Contact us today.

The new EU directive regulating alternative investment funds management (AIFMD) meant that asset manager ACTIAM had to make substantial changes to its risk management, a major operation that had to be carried out in a short period of time.

ACTIAM was founded on 1 July 2014 after a merger between SNS Asset Management (SNS AM) and SNS Beleggingsfondsen Beheer (SBB, Investment funds management). The company now has more than EUR 50 billion assets under management for insurers, banks and pension funds. Among them are Reaal, Zwitserleven, ASN Bank and SNS Bank. “Responsible asset management is our specialism,” says Rob Verheul, COO at ACTIAM. “We manage all our investment categories in a responsible fashion. We have made doing business in a responsible way core to our investment process. It is in our DNA and we are proud of it. “ACTIAM originates from the Hollandse Koopmansbank (Dutch Merchant Bank) and has more than earned its reputation as a responsible asset manager. It has managed the ASN equity fund for more than 20 years. In 2013, this fund was awarded the Golden Bull for the best investment fund, and in 2015 was deemed the best equity fund in the world. Verheul says: “We do not invest in companies who do not trade in a sustainable way and we let people know through our website which companies we exclude. The universe in which we invest is therefore not as big as that of many other players, but we have already proved that social and financial returns go hand in hand.”

According to Bart Harmsen, head of risk management at ACTIAM, it is not a question of just excluding the insufficiently sustainable companies. “We try to encourage these companies to become more sustainable. We keep many lines of contact open in order to bring about improvements in that area.”

Growth ambition

As a part of VIVAT Insurance, ACTIAM considers Zwitserleven and Reaal (also part of VIVAT Insurances) just as much a client as ASN Bank and SNS Bank, says Verheul. “We have also close commercial contracts with them, just as with our other external clients. We have seen that the combination of professionalism, flexibility and sustainability has created a lot of interest for our funds from institutional investors. The legislator gives us a helping hand here, since pension funds are required to use part of their capital for sustainable investments.”
As administrator of institutional investment funds, ACTIAM’s name is well-known in this market segment. Our ambition is to grow in the retail market as well, says Verheul. “We are investigating whether funds for institutional investors could also be made suitable for retail investors. Our name recognition among a larger audience will then grow as a matter of course.”

Tougher demands

Under VIVAT Insurances, ACTIAM operates independently, with its own license, policy and statutory board. “Even though SNS AM and SBB have worked together for years, with this merger we are creating one expertise centre for our clients,” Verheul explains. “By doing this, we are creating even more commercial and operational strength and we can more easily comply with legislation and regulations.” Tougher demands on fund management as a result of new legislation and regulations in the AIFMD (Alternative Investment Fund Managers Directive) were important reasons for the merger. This legislation requires that a fund manager may not outsource both its portfolio management and its risk management. Verheul explains: “The fund manager (SBB) would therefore have to go to great lengths to rig up its risk management. Asset management was already outsourced to ACTIAM (at the time SNS AM). If we had not integrated SBB and SNS AM, the cost to the client would have been much higher than it is now. The costs of the merger are small by comparison. We are trying to absorb these by working more efficiently.”

Gap analysis

The AIFMD legislation sets out best practices in the area of risk and liquidity management, among others. As far as ACTIAM was concerned, this guideline had an impact on many different levels. “Most of them were under control,” says Verheul, “but we were not able to make the changes for the risk management part on our own. We could see that the scale of changes necessary within risk management was too great for our own staff to contend with. We had discussions with a number of contenders, but Zanders was selected fairly quickly. During the very first meeting they showed their pragmatic, down to earth approach. No standard consultant-talk, but serious people who gave the impression they would get on with it and deliver something of real useful value.”

Time was of the essence: ACTIAM had to be AIFMD compliant by 22 July 2014 and have its risk policy implemented, otherwise obtaining the license would be under threat. So, article for article, a speedy start was made on analyzing the legal texts; what was written down exactly, and what is the impact of them for ACTIAM? And as far as the risk management parts were concerned, where were the gaps as far as the guidelines went? And that’s how the risk management and risk methodology were assessed, a process during which hundreds of pages were read and analyzed. Zanders consultant Mark van Maaren says: “Early on we involved the front office, as well as others, in the development of risk policies, risk methodology and risk reporting. They made a valuable contribution and their involvement facilitated the acceptance of the risk framework.” During the whole process the strategy was developed gradually and the levels of risk became clearer. Beforehand, Verheul expressed progress in terms of a target figure: “We wanted to achieve 6.5 on reaching compliance, then we wanted to take our time in order to make it an 8.” In that way the inaccuracies in some reports, which were a result of tight deadlines, were corrected, while the reporting process itself was speeded up.

With constant to-ing and fro-ing, i.e. by involving front office, a large number of issues were solved.

Jasper van Eijk, Partner at Zanders

This way most of the interest rate sensitivities on fixed interest instruments could be calculated, but a number of rates differed to what front office saw. By constantly going back to departments involved, the results were fine-tuned.

Internal involvement

In a short time frame a lot had to happen on both sides, but the interaction was ideal, Verheul thinks. “And what is so good is that we have improved the whole ACTIAM risk management framework. We are much more aware of the whole spectrum since it had much more impact than just the AIFMD part.” Harmsen nods in agreement: “The risk policy was also immediately adopted by the business and, as a result, the quality of thinking in terms of risk in the organization was given an enormous boost.” Van Maaren adds: “ACTIAM’s board’s strong commitment was an important factor in the success of the project. All directors gave up a lot of time to review and discuss the risk strategy, the preparation of risk reports and the development of risk methodology. Quick decisions were also made where there were issues within the project.” Van Eijk also felt the interaction within the organization was a success factor. “This was at all levels within the organization. The formulated policy had to take form by setting up models, methods and systems. But due to the limited timeframe we had to do this in parallel. This demands good co-ordination to get all cross-references tied in. Thanks to a pragmatic approach and the broad internal involvement, this was achieved.” The deadline was reached; ACTIAM was AIFMD compliant as of 22 July 2014.

Stick to the plan

For monitoring risk, ACTIAM used the existing risk management system, Dimension, from supplier Simcorp, of which Zanders implemented the new risk module. Verheul says: “We want the whole organization to use this system and the starting point was to include the whole risk reporting process in this system. Zanders firstly evaluated the suitability of this module for implementation of risk reporting together with ACTIAM and Simcorp before starting the implementation process.”
It symbolizes the secret of success of the whole journey, Verheul thinks: “Make considered choices and then stick to the plan. Don’t fall into the trap of implementing another system just because a report is easier to print for example, as this always leads to different problems. In retrospect, it all went very well, but there was a lot of pressure on everyone involved. All in all we are very pleased with the whole project. If we had to do it again then we would do it the same way.”

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In order to be able to integrate a number of activities and improve efficiency, the oil company Argos decided to implement a new treasury management system (TMS).They chose IT2 and were very satisfied with the result. This best-practice implementation provides an excellent example for other corporates, showing how such a project should be tackled.

Argos is a young oil company that combines the storage and distribution of oil with the international trade in, and sale of, mineral oils and biofuels. The roots of the company go back to 1918, when Ad van der Sluijs opened a bicycle shop in Geertruidenberg and decided to sell petrol there, too. This turned out to be a good business move because the Van der Sluijs Group went on to become a big player in the areas of sales, storage, and transport of mineral oils in the nineties.

In 2009, the group merged with FNR+, which, with its companies Frisol, North Sea Petroleum, and Reinplus Vanwoerden, is a market leader in bunkering and trading. Hence the North Sea Group came into existence. In 2011, the North Sea Group joined forces with Argos Oil. Since then, the logo is displayed at the head office in the Rotterdam harbor Waalhaven, as well as on the signs outside around 70 Dutch petrol stations and – due to the lubricants sold by the company – on the shirts of the Argos Shimano team during the Tour de France races in 2012 and 2013.

In the Western European downstream oil market, Argos is now the largest independent player (since it is not stock-market listed or state-affiliated).

More rigid

In 2015, Argos has more than 500 employees, with branches in several different European countries as well as offices in Brazil, Hong Kong, and Singapore. The turnover of the company lies between EUR 14 billion and 16 billion per year.

“Around the time of the merger between FNR+ and the Van der Sluijs Group, from which the North Sea Group was born, I started working here,” says Jan Tijmen Donkelaar, Argos’s manager of finance projects. “The market and the company have been constantly moving since then. New business was created by the merger and the internal structure also changed. In the treasury department, you need to keep up with all those developments, which entails a great deal of adjustment and steering. That requires flexibility in the set-up of your system.”

A treasury department was built up in the North Sea Group, whereby two activities needed to be integrated: the trade activities and the bunker activities, where all the LCs (letters of credit: the guarantees for oil products) were settled. That integration of the two activities gave rise to a department with a front office, a middle office, and a back office.

Donkelaar was given the task of supervising that process. “That concerned the middle office, involving setting up the processes, and I started there by implementing an online trading platform (FXall) for currency transactions.”

For the selection of a new TMS, Argos asked Zanders to advise during the request for proposal (RFP). Donkelaar notes: “The shortlist put forward by Zanders included IT2, Bellin, and SunGard. SunGard offered greater flexibility in the connection with third-party systems, while IT2 placed greater focus on the support of best-practice processes during the implementation. The latter was a better fit with our needs, and so finally we selected IT2.”

Near real-time

One important reason for choosing IT2 was that it is ‘near real-time’. Donkelaar explains: “The FX deals, for example, are fed into our system every five minutes. That isn’t live, of course, but it’s certainly fast enough for Argos.” Bart Timmerman, consultant at Zanders, adds: “Where banks require genuine real-time data, near real-time is fast enough for corporate treasuries. There are multiple currency dealers at banks, and every deal needs to be directly visible to the other traders.” At Argos, all the commodity traders are connected to FXall, an electronic trading platform for currency and money market instruments. Donkelaar says: “When our oil traders do a deal that requires FX risk cover, they put the deal into FXall. The transaction is then sent from there to treasury, which subsequently makes a transaction with a bank. The currency risk arising from oil trades is therefore covered by the traders themselves. In addition, treasury looks at the overall position on a daily basis, and the risk arising thereby is also covered. Cash optimization – if, for example, a swap needs to be made overnight – is carried out by treasury itself.”

Phased approach

Argos decided to take on the project leadership itself on the implementation of IT2. Zanders was asked to assist Argos with the implementation of the best-practice processes. The optimal set-up of the treasury processes in IT2 from a software point of view, while keeping in mind the demands from the business, is determined and fixed in the blueprinting phase – the first phase following the purchase and technical installation of the system. The oil company chose to implement a phased approach. Donkelaar says: “We started with the basics: the things we needed for our daily position management and for our LCs and guarantee summaries. This meant, for example, that we recorded all the FX deals and all the money market transactions with banks in IT2. We also wanted to build up all the historical data into the system from January 1, 2013, such as all the FX data, all the LCs and all the guarantees. From that point we could then continue to build further on the payment process and set up the accounting module, which links bookkeeping to the system. In addition, the introduction of a clear, logical division of functions and data integrity was high on the agenda.” It is an approach that is typical for this type of project, says Timmerman: “Certainly in situations where speed is needed and capacity is limited. There wasn’t a capacity problem at Argos, but treasury relied on Excel. The first thing you need to make sure of is that the basic functionality works quickly, so that the deals and cash management can be carried out well. You can then roll out the flow of payments, followed by coupling that to accounting.” “IT2 placed focus on the support of best-practice processes during the implementation” 5 Jan Tijmen Donkelaar (right) and Bart Timmerman The Argos head office in the Rotterdam harbour.

Intercompany efficiency

In this way, IT2 functions as a symbolic umbrella under which increasing numbers of functionalities can be introduced by making connections within the organization. Timmerman continues: “For the benefit of the set-up of your accounting module, you need to keep in mind that the codes you use within the organization – for example in the ERP system – can also be found in IT2. This means that during the first phase of such a project, you need to make choices concerning the set-up, which prove to be important at a later stage.” Treasury often has specific accounts, such as in-house bank accounts, and for specific products, such as interest-rate derivatives and LCs. All transactions in that area must be recorded in the general ledger and, with the accounting module, IT2 offers a means for generating the necessary journal entries in the system and exporting these to a general ledger such as Navision. “In addition, the system can also be used as a sub-ledger”, says Timmerman. “This means having your own general ledger system that, instead of journal lines, exports balance sheet items to the bookkeeping program – which can make it even easier for the accounting department.” Internal settlements can be made via an in-house banking structure, meaning that the cash management is far more efficient and savings are made on transaction costs. “The annual turnover of Argos is between 14 and 16 billion euros”, says Donkelaar. “There are around 3 billion euros of intercompany settlements. An internal structure has therefore been set up for this, and that is also picked up by the accounting module. Instructions are processed automatically; the straight-through processing (STP) has been improved enormously, which in turn leads to greater efficiency.”

Best practice

Argos’s treasury needed to change over from an Excel-based environment to a new treasury system. Within treasury there was already a lot of in-depth knowledge to set up treasury processes. However, there was also a lack of experience with system implementations. Donkelaar says: “IT2 was able to provide good support on a technical level, but we needed more substantive advice for translating the business processes and the reports. We therefore asked Zanders to help with the connection to the business, on the basis of best-practice principles. Once the blueprint had been set out and approved, we organized a number of work sessions for each different part under the supervision of Bart Timmerman, whereby firstly the system was set up and then an extensive users’ acceptance test was carried out.” Once this cycle had been completed, the system went live. “But even after the system had gone live, Zanders provided us with coaching in that area on a number of occasions, and we also received additional advice from IT2. This is a good example for other corporates as to how this should be approached.” The same approach was also applied with setting up the accounting module. Donkelaar says that the knowledge that was gained was subsequently documented. “We had three people who were directly involved with the implementation of the accounting module. This meant that all the accounting templates were tested extensively and we now have our own user’s guide of 175 pages, in which every type of transaction is described. This means that when new members of staff come to work for us, they can be trained more quickly and will therefore be able to use the module sooner.” According to Timmerman, that documented knowledge is one of the success factors of the project. “Argos also knew very clearly what it wanted. We were therefore able to carry out the set-up to a greater extent from the point of view of best practice. Still, the availability of people within the treasury organization can make or break a project such as this. Only the people who work at the corporate have the relevant specific knowledge. That is why the transfer of knowledge is so important; when a problem arises, you need to be able to solve that internally.”

More than expected

The efficiency achieved with the new system also implies a correlation between the purchase of IT2 6 “We now have our own user’s guide, in which every type of transaction is described” Jan Tijmen Donkelaar and Bart Timmerman and the number of staff in the treasury department. “No, that isn’t an immediate result,” says Donkelaar. “We wanted to achieve better capital management for treasury, meaning that we can look more strategically at the way in which money is handled; for example, the choice between paying in advance or giving guarantees in the form of LCs. And that also applies to financing arrangements: how do you deal with your working capital, and via which flows do you allow that to work? We previously did that far more on an ad hoc basis, but now with IT2 we have a much better view of that. This has meant that we’ve been able to greatly reduce the number of bank accounts. These are things that you may not immediately have in mind with a new system, but which that new system actually makes possible.”

Timmerman nods in agreement: “I often notice that many treasurers don’t immediately realize the full potential of a TMS. The implementation of a TMS usually leads to a high level of STP, which makes processes quicker, more efficient, and less subject to mistakes. The TMS offers the possibility of building more checks into the treasury processes, as well as regularly and simply being able to report on key performance indicators (KPIs). The focus shifts, as it were, from gathering data to analyzing data, not least of all, due to the time saved by the TMS. This leads to the creation of other possibilities for optimizing your working capital management. And that is an important advantage for every corporate.”

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WPP has treasury operations on three continents and each center has its own individual needs. The company needed to devise a request for proposals (RFP) for implementing a new treasury management system (TMS) and Swift-based bank communication that would serve the diverse needs of each regional office. Zanders worked on this project from an early stage, helping WPP to write a cohesive RFP and providing objective advice at the selection stage.

The biggest marketing company in the world, with 2,400 offices and operations in 107 countries, WPP has four main treasury centers. With headquarters in London and three regional treasury centers in Brussels, New York, and Hong Kong, the requirements of each hub differed considerably. The process of writing an RFP that would meet, combine, and harmonize the needs across the London, Brussels, and New York treasury offices was the first conundrum.

An RFP to meet all TMS requirements

Zanders was involved in the RFP from the outset, having come through a consultant selection process. Paul Delaney, director of treasury at WPP’s London headquarters, says: “We felt Zanders were best qualified to help us in the project, and they had good feedback from other companies with similar requirements.”

It was Zanders’ task to become very familiar with the organization, processes, and system requirements of each of WPP’s three treasury centers, and they did this by visiting each office and spending three days assessing their needs. Three Zanders consultants were working on the project throughout: Thomas Pels, David Kelin, and Laurens Tijdhof, all of whom worked with the treasury staff at WPP to write up an RFP that would set the company on its way to selecting a new TMS. “It was a joint effort between WPP and ourselves to make sure that we went into great detail and got all the questions we needed for the RFP,” explains Thomas Pels, of the Zanders’ Brussels office.

We felt it was important to bring in an independent view partly because, as a treasury department, we aren’t necessarily up-to-date with the changes in TMSs and aren’t best-placed to make an objective assessment of what best suits our needs.

Paul Delaney, Director of Treasury at WPP.

Paul Delaney believes that bringing Zanders on board was the right way to manage the project. “We felt it was important to bring in an independent view partly because, as a treasury department, we aren’t necessarily up-to-date with the changes in TMSs and aren’t best-placed to make an objective assessment of what best suits our needs,” he says. This is an opinion echoed in each of WPP’s treasury offices. David Hughes, WPP’s director of treasury operations in New York, points out that Zanders facilitated the RFP process between the three offices: “That is something I think we would have had a really hard time doing if we didn’t have Zanders – they were able to take an objective point of view.”

Three treasury centers – one global TMS

The most important requirement for the TMS from the London headquarters’ point of view was to have an updated reporting function, says Felicity Ronayne, UK treasury operations manager in WPP’s London office. “We wanted a system we could all use that was up-to-date, with really good report-writing features and a cash position worksheet that we could access across all regions.”

The heavy reliance on checks, zero-balancing, and WPP’s large number of US operating companies meant that the needs of the US office varied significantly from the offices in Europe. David Hughes notes: “We sometimes have over USD 100 million checks clearing in the morning, so one of our needs was for controlled check disbursement funding notification to be included in the workstation cash positioning. We also need to maintain a lot of inter-company schedules on the treasury workstation and another big difference is our reliance on zero-balancing from the operating company accounts to the main WPP account – in the US it is the basis of everything we do.”

The requirements for the Belgium office were slightly different. Veronique Freymann, European treasury manager at WPP’s Brussels office, notes: “The Belgium team manages more than 2000 accounts of the 750 entities in more than 15 countries. Furthermore, we manage the cash pools (zero-balancing, notional, and multi-currency), the group account structure, inter-company loans, and the group’s guarantees. For this, the possibility to have cash forecast information delivered via the web was one of the major requirements.”

Zanders managed to combine all the different regional requirements into one global RFP document. The RFP resulted in three potential TMS providers, but WPP finally chose IT2. The system is being implemented gradually across the headquarters and two regional centers. It is near completion in New York and Brussels, while implementation in the London office will begin with static data in Q4 2012.

Veronique Freymann says: “The implementation of IT2 is gradual – so we have started to upload data from bank statements, which enables us to use some tools already. We will start with the inter-company loans and it will be a step-by-step process.”

The TMS in the New York office will be fully functional by the first quarter of 2012, although they will be testing it and running parallel with it before then.

Choosing a Swift Service Bureau (SSB) provider

As well as playing an active part in the TMS selection, WPP’s Brussels office also led the process in selecting an SSB provider. David Kelin, director at Zanders’ London office, points out that the TMS selection and the choice of SSB provider were complementary projects. “When we were looking at the TMS, we also assessed WPP’s banking relationships and communications – we established early on that an SSB would be necessary and that Alliance Lite would not be sufficient for WPP’s needs.”

WPP eventually chose Swiss provider BBP to provide their Swift bank communication. The selection of the SSB was completed in August but it has not gone live yet. WPP’s Brussels office is currently transmitting data across to the new SSB system, and it will become effective before the end of 2011.

As with the TMS selection process, Zanders was instrumental in helping WPP to understand their needs for Swift and then choose the right product. “We are the end users, so we know what we want, but we don’t know what advantages one solution offers compared to others,” says Thierry Lenders, European treasury manager at WPP’s Brussels office.

It is expected that the SSB will bring significant benefits for the Brussels office. Veronique Freymann notes: “SwiftNet gives a single channel of communication between us and the banks, so it will be a lot easier for us.” For now, WPP is reserving judgment on whether the SSB will be needed in its other treasury centers. Paul Delaney says: “It was evident that we needed the SSB in Brussels, but it is not yet clear if we will get the same benefits from it in New York and London. We are watching what happens in Brussels closely and we’ll make a proper assessment once it’s fully installed there.”

Bringing the project to a happy conclusion

This has been a long and complex project. What began as a challenging RFP in 2010 then became the selection and implementation of a TMS and an SSB. The project is ongoing, and several months remain before both IT2 and the SSB are fully functional.

We were very impressed with the quality of the people at Zanders and the depth of their knowledge. Most of all, we really appreciate the fact that the same three Zanders consultants have seen the project through from beginning to end.

David Hughes, Director of Treasury Operations.

For more information on selecting a Treasury Management System or on the process of choosing a Swift Service Bureau provider, contact us.