The Perfect Treasury

Backed by the latest IT advances, treasurers of multinationals in Asia leave nothing to chance.

Ringing Tones

Nokia Treasury Asia — which is responsible for risk, cash and liquidity management and funding for Nokia’s operations from the Gulf to the international dateline — does not trade for profits for its treasury services. But its role in preserving and creating shareholder value is clearly stated in the group’s annual report. “The treasury function supports this aim by minimizing the adverse effects caused by fluctuations in the financial market on the profitability of the underlying businesses, and thus on the financial performance of Nokia,” says the report.

Nokia enforces a monthly reporting cycle that collects foreign exchange exposure data from the affected companies. “We have a policy that our sales companies are invoiced in their local currency; this concentrates the FX risk to factories and distribution centers,” says Blair. “This way, the risk is not spread out across the region,” he says. The reporting cycle projects FX exposures for up to 12 months. The net position is then hedged in financial markets through forward and options contracts, rarely exceeding one year.

A simple hedging strategy isn’t enough for Nokia. The company uses the value-at-risk (VAR) methodology to assess the foreign exchange risk. VAR is a figure representing the potential losses for a portfolio resulting from adverse changes in market factors, using a specified time period and confidence level based on historical data. Blair calculates this by using a risk management module called Q-Risk, provided by SunGard, a vendor of treasury integration systems.

Blair hedges “almost all” of Nokia’s currency exposures. He is also an early adapter of FX portals; Nokia was the first company in Asia to trade with Currenex. Like Scholer, he expects a volatile Asian currency market this year. “We didn’t see any major disasters last year, but anyone who forgets 1997 is taking serious risks,” says Blair. “That implies that we don’t just rely on VAR, but we have to do some serious stress testing as well, and be prepared for major discontinuities in terms of market price risk,” he says.

Year-long forecasts of purchases and sales is not simple guesswork for Nokia. Its phones and equipment may be hot property in Asia where mobile phone demand seems insatiable, but what makes forecasting easy is RosettaNet, an Internet-based XML trading platform between information technology, electronic components, and semiconductor manufacturing companies and their suppliers. “RosettaNet specifies the format for all kinds of business transactions that are important to our industry segments, from product planning, volume planning, ordering, invoicing and remittance,” says Blair. Nokia expects that 40 percent of its purchases this year will be done through RosettaNet, a nonprofit organization owned by a consortium of companies that use it.

RosettaNet is, in fact, far more ambitious than an E-business hub for the technology industry — it is a standard for XML communication between trading partners and service providers. Through RosettaNet, Nokia wants to automatically settle payments between vendors and clients as well. This will enable companies to automate reconciliation of money transfers with their accounts receivables and payables. Unusual as it is, RosettaNet’s settlement functionality is still a pipe dream. “When we buy and sell products and services, we have to settle them, and at the moment, banks own this space,” says Blair. “We’re still trying to see how the banks fit in. For the moment, we’re trying to make a lot of noise about it, but banks are saying we’re the only excited ones,” he adds.

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