Treasury Transformation: Achieving Operational and Financial Efficiency
By Albert Hollema, Head of Treasury & Investor Relations, Endemol Shine Group
Endemol Shine Group, a leading media company that produces and distributes multi-platform entertainment content, wanted to invest in new, longer-term projects to meet growing audience demand. But as a highly leveraged organisation, the company needed to self-fund these ventures. Treasury therefore embarked on a challenging but rewarding transformation journey to improve internal workflows and make cash balances across the group work harder.
Although Endemol Shine has traditionally produced a number of game shows for television, as well as serialised dramas, the market is increasingly calling for more scripted productions, such as films and series. These require investment over an extended timeframe, however, given the lifecycle of producing a film– from scriptwriting and securing buy-in from a broadcaster, to location scouting, casting, filming and editing. As such, the level of working capital required by the group is that much higher.
There is no unlimited external funding potential for these scripted productions because the group was – and still is – highly leveraged. Besides, our credit rating is CCC+, which makes it challenging to borrow from banks at a reasonable rate, and we were already paying a significant amount of interest per annum on our existing financing. It was clear that we needed to look for internal efficiencies to help free up cash from inside the business and to put surplus balances to better use.
So, in April 2017, we embarked on a treasury transformation project to do just that. We knew that there were significant efficiencies to be achieved because when Endemol and Shine were merged at the beginning of 2014, creating the Endemol Shine Group, the resulting treasury set-up was not really done ideally given the company was involved in many follow up transactions and restructurings.
The ghost in the machine
We had a number of legacy cash management structures in place and bank relationship management was highly decentralised, across more than 40 banks as we found out. For a group with £2bn turnover, we also had far too many bank accounts – over 1,000 in total. What’s more, we had limited or no visibility into some of those accounts and it took almost six months for us to even discover that some of these accounts existed. Cash was sitting in those accounts, not being put to work, which was a waste of internal resources, so we saw the opportunities by unlocking these dormant cash balances.
Secrets of success
Building a strong business case and securing management buy-in early on has helped us to make swift progress through our transformation journey. The main foundation of the business case was that all of the systems we were previously running were actually more expensive than the few new ones we required. So, the transformed set-up would not only be far more efficient but also cheaper. What’s more, with the new systems in place, we calculated that we could free up a significant amount of cash from within the organisation - and when you are paying a high interest on your financing, every penny counts.
In addition to management buy-in, it is important to communicate your vision to the operating companies – outlining the benefits for them and for head office. Once the buy-in has been secured, I would suggest taking some time to split your transformation journey up into phases and mini projects – scrum approach. A big bang approach isn’t practical; you will have much more success taking it in clear stages, with people or teams assigned to each task. Celebrating small wins along the way will also help to keep the momentum of the project going, which is absolutely key for such transformation journeys.
In addition, the cash forecasting process was highly decentralised and slow. It was up to the operating companies to report into head office, through a very manual process. By the time the relevant information reached treasury – assuming it actually did –the next challenge was that the information was already out of date.. From that point, it would then take even more time to collate all of the information from the different operating companies and build a complete picture at head office.
The fragmented systems landscape only compounded the delay and resource burden. Many of the operating companies were using different systems than head office and even each other. When information was extracted from the operating companies’ accounting systems, it had to be transferred into a head office Excel templates as a means of standardisation. There were then further layers of complexity at head office, where information was fed into the consolidation system and back out into Excel, and then into PowerPoint to present to management.
Moreover, if one operating company decided to update a figure part way through the process, all of the workflows would have to start from scratch as nothing would automatically update. As a result, the cash forecast was being produced on the back of information that was over a fortnight out of date, meaning that cash could not be put to use in an optimal way. The fact that the cash flow forecasting process was highly manual also left it open to human error.
Making change happen
While there were significant changes that needed to take place to make treasury more efficient, we also wanted to ensure that the transformation process was as painless as possible. So, we began by looking at our existing systems and processes to see whether we could make relatively small tweaks, such as implementing additional functionality in the TMS, to get us closer to our end goal.
At the time, our TMS was from one of the larger systems providers . We reached out to them as an initial step because we knew that systems improvements would be required to help the transformation project progress. Unfortunately, it took almost three months for them to respond to our request, and we felt that this did not bode well for what we wanted to achieve in a relatively short timeframe. Perhaps the size of Endemol Shine did not fit their preferred targeted client base.