Anticipating the Treasury of the Future

by Håkan Lundgren, Vice President, Corporate Treasurer, Sony Ericsson

When we first set up the treasury function at Sony Ericsson in 2001, it became clear that we were seeking a treasury model that differed from those of other companies. At that time, leading treasury functions were undertaking proprietary trading in order to demonstrate value to the organisation. We recognised that our shareholders were not looking to Sony Ericsson to create profits through financial trading, but instead for treasury to support the company in excelling at its core business activities. This was quite a different approach from that of many multinational companies and set different terms of reference for treasury. Instead of front-office pricing and trading capabilities, we sought to develop skills and expertise in the areas that were specific to our business, such as balance sheet forecasting, financing, risk policy definition and long-term strategy. We also wanted to establish different relationships with the business. Rather than operating independently of it, our objective was to be close to the business, understanding, responding to and fulfilling the financial requirements that would support our business strategy.

Reducing costs, increasing efficiency

We therefore made the decision that we would conduct no proprietary trading at all, without even a small trading mandate, as we recognised that it would be a distraction from our primary objectives. Furthermore, we needed far less middle-office capability, as we did not need the same degree of emphasis on segregation of duties etc., so our operational costs and the complexity of the audit process were also reduced significantly.

Another way in which we could reduce costs and maintain our focus on addressing the specific needs of the business was to outsource activities that were not specific to Sony Ericsson and therefore were general in nature. For example, every treasury has to conduct back-office processing and manage the daily cash position, so similar tasks are conducted in every company. We recognised that it would be more cost-effective and efficient to outsource these tasks to an expert provider, such as a bank, that has the infrastructure and resources to undertake these functions as a core activity. Initially we outsourced our back-office and cash positioning to a US bank that later decided to terminate this part of its business, and we moved instead to SEB.

Outsourcing in practice

We have been working with SEB as a treasury outsourcing provider very successfully for a number of years. SEB is also our cash management bank, which makes it easier to align information and processes. As outsourcing provider, SEB handles all the back-office activities related to each financial transaction, including confirmation, settlement and payment. The bank also manages collections and cash concentration, with surplus cash balances being swept into an account in Sweden. We have a cross-currency cash pool which is highly efficient and cost-effective: we no longer have to swap our 20-25 currencies forward each day. Another activity which we decided to outsource was cash investment. We recognised that we could not try to compete with fund managers with dedicated credit resources, so SEB invests cash on our behalf into money market funds (MMFs) and manages cash on a proprietary basis. This is a low-cost investment option whilst enabling our investment process of establishing and reassessing risk level on an ongoing basis to be conducted rigorously. As a result of outsourcing many of our cash and investment-related activities, our technology requirements are relatively simple, which further reduces our costs. We therefore use our ERP for treasury and we have web-based access to monitor credit limits in the system.

Strategic activities

An important activity for Sony Ericsson’s treasury is FX hedging, which is centralised for the group globally. We use FXAll as our multi-bank, multi-currency foreign exchange trading platform for most currencies except for some with specific currency controls such as RMB and BRL. Treasury also owns customer credit risk management and we are responsible for establishing credit insurance wherever possible. We perform trade finance activities where necessary. As we use MMFs for the bulk of our investments, which give same-day access to liquidity, it is not necessary to perform daily liquidity forecasting, although we do balance short- and long-term forecasting, and access funding on behalf of the group.

There are areas where we can see expansion and enhancement in the future. For example, we can see how a bank, or its partners, could pool every currency, combine them in a cross-currency pool and invest the surplus automatically. We are not far away from this, but the restriction currently is that there are limits per currency in multi-currency cash pools. We do not outsource our commercial payments at this stage, but we see that there could be cost and efficiency advantages should banks offer outsourced payment factories in the future.

Our treasury function is a small, highly specialist function with graduate-level employees who can focus on tasks that deliver specific value to the business rather than spending time on repetitive processes. We circulate functions so that each person develops a breadth of experience, which is important both as back-up for individual team members, and also permits good career development and long-term staff retention.

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