Author - Kingfisher Group Treasury (March 2002)
Contact : Lynda Heywood +44 (0)207 725 2943

The story behind the development of eTC exemplifies what can be achieved when one of Europe’s top corporate Treasuries works in partnership with a specialist financial software house with the aim to developing the best corporate TMS possible.

The rationale for development of a new Treasury Management System (TMS) dates back to 1998/9 when Kingfisher sought to harmonise and optimise its European cash management in line with its expansion throughout Europe. European cash management solutions at that time essentially involved using a combination of country level banks zero-balancing into a lead account at the end of each day. These lead account balances would be pooled, using an overlay bank and various options be available for funding the lead accounts or investing excess cash. The number of potential overlay banks was limited although each could provide bundled software and links to most existing TMSs. National differences in banking conventions across Europe required country specific arrangements such as varied and complicated value dating conventions and different time horizons for reporting.

Whilst for many corporates the overlay solution was a viable option, in Kingfisher’s case it was not desirable. Kingfisher, with a broad geographical spread across Europe, both in and out of the euro zone – France, Germany, Belgium, Holland, Poland, Luxembourg, Italy, Austria, Czech Republic and Slovakia – relied upon local banking relationships to ensure the smooth running of its retail operations. The dilemma was that existing local banking relationships operated very effectively providing a full range of services and the use of an overlay bank was seen as an additional, and possibly unnecessary, link in the cash management chain. Kingfisher Treasury seeks to provide ‘value added’ services to the Group – it was not prepared to jeopardise losing any transparency or run the risk of introducing any additional delays or costs.

Kingfisher Treasury had been acting as banker to its UK operating companies for many years facilitated by its 1994 selection of a Treasury Management System which was particularly strong in its integration of intra group accounting. The challenge was “Could Kingfisher Treasury act alone as an overlay bank for its European operating companies?” The quick answer was “No.”

Such a move would have necessitated Kingfisher emulating the processes driving the systems used by the global banks marketing overlay solutions and the TMS was not up to the task. An independent Treasury review, undertaken in 1999, concluded that whilst the Treasury accounting functionality was excellent, the TMS was unlikely to match up to Treasury’s cash and risk management aspirations in the future. Treasury needs for the medium-term were defined as part of the review and possible system solutions evaluated. The perception drawn was that TMS vendor standards were “standing still”, reflecting broadspread product maturity and high levels of customisation for individual clients. The review concluded the market lacked a “Best Practice” Treasury system and that recent product development had been stifled by the need to satisfy Y2K compliance, ensure euro compatibility and develop web enabled features.

The recommendation was for Kingfisher Treasury to commission a series of system modules each relatively small in size and cost, which would combine to replace the TMS with a “Best Practice” system. The aim was to minimise project risk, cap costs and ensure minimal disruption to existing Treasury operations.

City Financials (CF) and Kingfisher Treasury had established a good working relationship, CF having recently developed for Kingfisher a tool to upload Excel returns from group operating companies and report a consolidated group position. CF was headed by Steve Whalley, a key member of the original development team for the existing TMS who had led implementation at Kingfisher. CF proposed an ambitious systems development harnessing its unique expertise in developing integrated Treasury solutions.

Kingfisher set about the task of working as development partner with CF, specifying a new Treasury & Cash management system from scratch. The relationship was mutually beneficial, CF benefited from the corporate support and Kingfisher was able to influence the development of the system from the outset.

Developing a TMS is a major undertaking and not without risks. On the premise that a modular approach adopted to an integrated design would minimise technology risk, CF and Kingfisher initially targeted the weakest parts of the existing TMS. This approach accelerated gains upon acceptance and limited downside risk for Kingfisher. The development was undertaken on a fixed cost basis, with an agreed functional specification for each module to be delivered within a challenging, yet realistic timeframe governed by contractual obligations. The new system design sought to maintain generic functionality in order to mitigate ‘legacy risk’.

Kingfisher agreed functional specifications and implementation timeframes with CF towards the end of 1999 and ‘cash management’ identified as the first deliverable was implemented during May 2000 and live, on time, at the start of June. Over the next six months the remaining modules were delivered on time and on budget. By the end of 2000 Kingfisher was able to dispense with the old system and rely solely upon the now fully integrated solution from City Financials, now with a product name of eTC.

Today, eTC is the key system in Kingfisher Treasury. European Cash Management operates smoothly with eTC accepting electronic imports, in a multitude of different formats, each funnelled through HSBC Hexagon from the group’s relationship banks around the world. eTC correctly interprets multi-value dates within MT940 messages, allowing Kingfisher to provide cash concentration and/or cash pooling solutions as appropriate in specific locations. Kingfisher’s operating companies are able to use the system in real-time utilising a Citrix connection to initiate and monitor activity across their accounts. Account reconciliations have been automated, market rates are imported from Reuters, confirmations matched using CrossMar, eTC file exports support management accounting and electronic files are transferred to Hyperion for group accounting.

In essence, Kingfisher Treasury has achieved straight through processing with all the associated efficiencies; enabling day-to-day operations to operate smoothly freeing limited resource to focus upon value added activities. The cost of the system development has been far less than any of the alternate solutions available at the time of review, representing an excellent return on investment. Working with CF has been a success and the relationship continues to prosper. CF development of a truly generic TMS has allowed Kingfisher to optimise its cash management processes.

By building in the tools that give unprecedented flexibility to import and export data and seamlessly integrating cash management, dealing, risk management, accounting and reporting, Kingfisher Treasury believes it has a platform which can take it forward for the next 5 years.

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