latest news Every Little Helps: Tesco – Treasury Excellence Award In a wide-ranging presentation on treasury strategy and unlocking corporate value hailed afterwards by one member of the audience as “inspirational”, Tesco Group Treasurer Nick Mourant accepted this year’s EuroFinance award for Treasury Excellence. The award was presented at our 16th annual International Cash and Treasury Management Event of the Year in Vienna in September 2007. Our second annual Treasury Perspectives report (published at the 16th International) features an exclusive EuroFinance interview with Mourant. This focuses on his award-winning drive to get the value in Tesco’s vast freehold property portfolio reflected in its share price through a massive leaseback and share buyback. Download PDF In Vienna, Mourant returned to the thinking behind the property manoeuvres. He also gave valuable additional insights into the giant UK retailer’s approach to treasury (Treasury Perspectives also carries a Tesco treasury profile, focused on benchmarking, cost, working capital and tax). Lean team It operates a team of 14 or 15 professionals, which he describes as “quite lean” for a company that ranks as the world’s third largest retailer (and second most profitable). This team’s specialities range from cash management and foreign exchange to relationship management  - internal and external - structured finance, and middle office tasks such as management accounting, controlling and analysis. Largely centralised, it also includes a regional treasurer in Hong Kong.  Mourant expects the same of his team that his CFO expects of him – “no surprises”. “I take responsibility for the balance sheet and the interest rate line. If I sign up to hit my numbers, he expects me to deliver and if I’m not going to, he expects me to put my hand up and tell him. As treasurer, that’s what I want from my team as well.” Tesco is now in 13 countries. The chief executive and finance director of each local operation in the increasingly international group (an exclusively domestic player just 10 years ago) are responsible for delivering operating profit. However, Tesco approaches the tax treatment of this performance as a joint responsibility, according to Mourant. “It’s not something we tell them from the centre - we’re not that arrogant that we assume we have all the answers.” Clarity & simplicity Mourant himself has been with Tesco for 20 years. When he became Group Treasurer in 2004, his first step was to weed out some of its 40 banks by unveiling a new loan facility priced deliberately at what he describes as a “painful” level. Some 10 institutions were unwilling to bear the P&L impact. Subsequently, Mourant and his team analysed the remaining banks relative to their base capabilities. Identifying the outperformers and those “that should have been hitting harder” helped it bring the relationship group down to a core of 15.  In return for their commitment, he promises them 75% of Tesco’s “banking wallet”. He also seeks to balance each bank relationship across “a fair spread of the low value services we require and high value sexy stuff.” Each relationship is steered through an annual performance review that looks forwards as well as backwards. Mourant discloses to each bank its share of Tesco’s fee and commission payout and around 20 treasury projects for the next 12 months – each of which it will work with three lead banks on. He characterises this approach as one of “clarity & simplicity”. To his considerable surprise, developing this process highlighted the attractiveness of Tesco’s foreign exchange trading. Although it is focused on low-margin products, this has a significant volume of some £2 to 3 billion per year and was concentrated with its current account holders for convenience. “We hadn’t realised how valuable FX was.” Triggering revaluation Although Mourant describes the ratings agencies as “less confident” in Tesco than they were three years ago after its multi-billion pound leaseback programme and share buybacks, its rating has not suffered from these important moves. The shareholder-friendly shift in its dividend policy to expand the payout in line with growth in operating profit might also have been expected to impact the rating negatively. The fact that it hasn’t appears to reflect the strength of the company’s operational performance. At the same time, equity investors are starting to value the more stable cash flows from its predominantly freehold property portfolio at a higher price/earnings (P/E) ratio. Moreover, while Tesco has been able to trigger this revaluation itself, one of its key rivals (J Sainsbury) is facing a private equity-style bid based on very similar calculations and aggressive investors in another (Carrefour) are pushing for a property-led restructuring. “This isn’t theoretical stuff,” Mourant concludes.