A major corporate treasury award presented to National Express and Thomson Reuters showcases the power of intelligent technology in helping the transport group to manage its commodity price risk.
- National Express is highly commended winner in the Best Risk Management Solution category at the Adam Smith Awards 2018, hosted by Treasury Today.
- The award recognizes the role of Thomson Reuters Eikon and the FXall platform in enabling the transport group to achieve corporate treasury best practice.
- Faced with rapid movements in fuel prices, National Express is now able to create dynamic risk reports for commodity exposures and financial counterparties.
National Express and its innovative use of Thomson Reuters corporate treasury technology has secured a major success at the esteemed Adam Smith Awards 2018, hosted by Treasury Today.
The corporate treasury award is recognition of how commodity price risk data and tools from Thomson Reuters have helped National Express to hedge its fuel exposure and the associated risks that come with rapid movements in fuel prices.
The well-attended ceremony, held at Plaisterers’ Hall in London, put corporate treasury award winners in the spotlight and showcased the very best achievements of treasurers, CFOs and finance directors across a suite of different industries.
With the use of technology a key focus, the solution submitted by National Express and Thomson Reuters was awarded Highly Commended Winner in the Best Risk Management Solution category.
National Express Group is a leading transport provider delivering services in the UK, continental Europe, North Africa, North America and the Middle East, while Thomson Reuters is a leading intelligence and technology provider, powering workflows and professionals with the information and tools they need to make informed business decisions.
The Adam Smith Awards
Launched in 2008, the Adam Smith Awards program is universally recognized as the industry benchmark for achievement in treasury and financial management.
This year, the corporate treasury award program received over 200 nominations spanning 35 countries.
At the 2018 award ceremony, more than 240 people from Europe, Africa, the Americas and the Middle East joined together in the City of London to celebrate their successes at the 11th edition of the Treasury Today Adam Smith Awards.
What was the challenge confronting National Express that propelled its treasury team to develop a more efficient commodity price risk management solution?
The challenge facing National Express
Prior to the incorporation of Thomson Reuters Eikon into its treasury workflow, National Express relied solely on manual updates to credit ratings for assessing counterparty risk.
As the company has more than 16 banks that it trades with, this was labor intensive and sometimes resulted in the use of ratings that had not immediately picked up on significant changes in a counterparty’s credit quality.
The lack of real-time realistic market pricing also caused issues in trading, and required at least two of the team to be on the phone at the same time to ensure prices quoted were realistic and on-market.
Understanding price movements
The treasury team at National Express monitors each fuel derivative it hedges on a daily basis to observe movements in prices for different hedge tenors.
Prices are monitored in the end currency and unit in which the underlying risk is purchased (e.g. GBP pence/liter).
Operating divisions can then be kept up-to-date of movements in available hedge prices at a price they understand.
Individual components within the hedge (e.g. USD commodity + FX forward) can also be viewed to gain a better understanding of the underlying drivers of price movements.
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Using Thomson Reuters Eikon
A range of metrics covering tier 1 capital, CDS, share price vs. a financial counterparty index (European and U.S.), and credit ratings are used and feed directly from Thomson Reuters Eikon into a spreadsheet model that Thomson Reuters helped National Express to build.
This links to National Express’ internal counterparty limits matrix so it can determine the maximum notional to trade, whether to trade at all (if more than one of the metrics has breached a pre-set level) or whether to reduce exposure to a financial counterparty.
This dynamic tool allows the treasury front office to act with confidence when dealing and gives management comfort that policy levels are being adhered to and reviewed regularly.
Commodity Price Risk Management
Thomson Reuters Eikon functionality also allows for fully integrated real-time reporting of market data and other key commodity price risk metrics that allow National Express to immediately refresh its reports at the touch of a button.
Automating the process allows the team to move away from the copy & paste of charts/data into PowerPoint presentations and Excel spreadsheets.
This saves the team a huge amount of time in preparing reports.
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Corporate treasury best practice
By incorporating Eikon into its workflow, National Express was able to create a dynamic set of commodity price risk reports for the group’s commodity exposures and financial counterparties to provide greater visibility and understanding of each area of risk.
Reporting is now made reliable and easy to maintain, and covers a broad range of metrics, while it is also useful as an early warning tool for treasury to take action with confidence.
The treasury team is now able to track changes in commodity prices to hedge fuel exposures and monitor changes to counterparty credit quality, as well as to take action on adjusting exposures or credit limits following a change in the credit quality of a financial counterparty.
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The power of FXall
With some 16 banks that National Express trades with on a daily basis, the treasury team also needed to more efficiently spread out its FX trades across its various banking partners based on best price offering per individual trade.
Michael Payne, Deputy Group Treasurer at National Express, said: “FXall, Thomson Reuters’ exchange aggregator platform, has also made a big difference in helping us more effectively allocate our FX trades across our bank group.”
With FXall, the treasury team at National Express is able to trade with confidence, in the knowledge that it is securing the best price from its group of banking partners, for each and every FX trade.
Following the corporate treasury award, Ritu Singh, Market Development for Corporate Treasury at Thomson Reuters, said: “We congratulate National Express for its win, and are pleased to be recognized as its trusted partner facilitating innovation and best practice in the workplace, as well as helping the team streamline labor-intensive parts of their workflows.”