Keep it Simple

It’s only three years since the UK’s fourth biggest supermarket was still entangled in its seemingly endless attempts to purchase and integrate its new acquisition, Safeway. The deal dragged on for over two years, with the Office of Fair Trading slowing things further by insisting on a full enquiry into the market impact of the deal.

The merger eventually went through with a few adjustments, and after announcing a major restructuring and rebranding exercise, Morrisons emerged leaner, stronger and more competitive. The Bradford-based grocer recently announced a 7% increase in profits to £655m in marked contrast to its rivals Tesco, Sainsbury’s and Asda.

Part of the reason for the turnaround has been the pursuit of prudent financing policies, as reflected in its treasury position. The Holy Grail for many businesses during the credit crunch is flexibility, something few can achieve given the tightening of the credit markets. It’s something Morrisons treasurer Tony Marsh spends most of his time trying to achieve and maintain.

"The only way you allow yourself flexibility is by keeping prudent positions elsewhere," he says. "That’s because no bank will allow much flexibility if you’re already towards the edge of your limit. So a prudent position on the balance sheet is key."

To that end, in September 2008, a few weeks before the banking crisis went from shaky to meltdown, Morrisons signed a new deal for a significant facility with its bank.

"We got a really good price, and for five years," he says. "Granted, it was good timing but it was also an indication of the retailer’s new direction.

At the heart of the supermarket’s policy lies a belief that when it comes to managing cash, simplicity and clarity should be the watchwords.

"We have a treasury policy within the business that restricts the options available to us in every department which ties us to ordinary products," says Marsh from the company’s Bradford head office. That keeps us away from anything too complex and I’m happy to work like that to be honest. Keep it simple so that not only we understand it but it’s easy for the rest of the business to understand, keeping things clear and precise for other people to follow."

Beneficial relationships

Providing clarity has been crucial as the retailer has sought to navigate its way through steep declines in consumer spending and high street collapses left and right. Ironically, the difficulty of integrating Safeway in the two years leading up to the downturn may well have insulated Morrisons from the worst.

Ensuring that the supermarket has sufficient headroom is crucial after three years of a major effort at bringing Morrisons up to scratch with its competitors. The UK boasts one of the most competitive grocery markets, so surviving amid three long established rivals is no small achievement for a business that up until four years ago had no presence south of Birmingham. For Marsh, this has meant ensuring the relationship with the business’s banks is handled sensitively. Now even more so, given the current climate.

"Banks, for whatever they’ve given you, expect other things in return,’ he says. ‘So they would expect you to do other lines of business with them to cover what responsibilities they’ve taken on in the lending arrangements."

All that means that Marsh is crucial in ensuring Morrisons’ banks are kept onside. So how does the treasurer make sure that his banking partners continue to look favourably on the retailer?

"We’re trying to get more business for the banks within the organisation, so we do act as internal promoters for the banks around the business," he says. "It makes sense as it helps our relationship with the bank if we’re helping them pick up business elsewhere."

The rise of the treasurer

Marsh is now one of many treasurers who have found themselves – and their work – thrust into the spotlight by the credit crunch. Previously, most treasurers, even those at high profile FTSE100 businesses like Morrisons, can expect to receive little in the way of boardroom interference. For a large retailer, the emphasis will naturally fall on operational issues: pricing, supply chain and customer management.

But the past 12 months has seen the profile of treasury grow enormously in many businesses. For Marsh it’s been an instructive time.

"Of course, we’re part of the overall finance team but I would say that the profile of treasury within that has increased recently," he says. "You can see that in the report and accounts: the chief executive now mentions the facilities we’ve got, where the balance sheet is heading, how prudent we’ve been and so on." It’s a welcome change for Marsh, who believes treasury performs a vital and unheralded function in most large corporates.

So while the deepening economic gloom is hitting sales, marketing and business development professionals, for treasurers the downturn is unexpected chance to demonstrate their value to the business.

"Previously they wouldn’t have considered the full reporting of our treasury position to be part of the chief exec’s remit," Marsh says. "It used to be hidden in the back bit but now it’s front and centre."

All of which means that Marsh’s treasury team is now seen as a more central player in the Morrisons story.

"I would say there’s more influence and it gives you a level comfort that someone is taking a lot if interest in what you do," he says. And by pursuing a policy of simplicity in treasury arrangements, Marsh is repaying that faith.

Play it safe

The supermarket has largely steered clear of riskier products, has retained a vanilla investment policy and has ‘stuck to its knitting’ since completing the Safeway deal. It’s something the City has noticed, much to Marsh’s satisfaction.

"The policy of prudence also stacks up with the ratings agencies as well: any sign of weakness now and they are a lot keener to downgrade you than before," the treasurer reflects. "They haven’t come out of the banking crisis with their reputations entirely intact, but we’ve seen upgrades at the times when most people are experiencing downgrades which reflects well on the prudent policies we have."

And it’s not just investors who are happy. Supermarkets live and die by their supplier base, and Marsh is keen to point out that treasury has a role to play in managing these relationships. We don’t speak directly to suppliers, but we do get contact with them through the buyers here," he says. The treasury team backs up the buying teams by providing real time information on the supermarket’s cash position. That makes deciding payment terms and determining contracts less of a risky business.

According to Marsh, Morrisons has traditionally been a good payer of suppliers because of its cash-rich background, and a fifth or more of its products come through its own subsidiaries, making it less exposed to as many suppliers.

"We do a large amount of our private label stuff ourselves, so there aren’t as many supplier negotiations as many other of the Big Four."

So while suppliers, investors and customers continue to get satisfaction, Marsh and his team will raise a (quiet) toast to the Morrisons success story.