Designing a Robust and Scalable Treasury Policy for an International Business

Key objectives of the new treasury policy

 Dechra Pharmaceuticals is a global leader in the veterinary healthcare market, with a presence in over 50 countries worldwide. Founded in the UK in 1997, Dechra has expanded rapidly over the past two decades, both organically and through acquisitions, to become a major player in the animal healthcare industry. As the company has grown, so too has its need for a robust and scalable treasury policy that can support its global operations.

Before 2014, Dechra's treasury operations were decentralised, with each subsidiary managing its own cash and treasury functions. This approach led to a lack of visibility into the company's consolidated cash positions and foreign exchange (FX) exposure, making it difficult to manage risk and optimize cash usage. To address these challenges, Dechra implemented a central group treasury and adopted a netting system in Europe. The cash pool became a zero balancing cash pool and also expanded into the USA when the company implemented a Treasury Management System (TMS) from Salmon Software, known as Salmon Treasurer, to support its treasury operations.

The primary objectives of the TMS were to provide better transparency into Dechra's consolidated cash positions and FX exposure, as well as to enable the company to hold intercompany positions and capture zero balancing and netting movements. To achieve these objectives, Dechra established a close relationship with Salmon Software and implemented MT-940 reporting of bank account balances and transactions. This allowed the company to account for daily interest and taxes arising from those balances and transactions.

“Dechra manages risk in its treasury operations by centralising FX risk in the UK at group treasury”, explains Steve Card, group treasurer at the pharma specialist.

“For acquisitions, Dechra matches the currency of the acquisition price with borrowings in the same currency. For transactions, we use a daily zero-balancing cash pool for the majority of our operating subsidiaries to centralise FX risk.”

FX position is monitored throughout the month, with actions taken to reduce the impact of currency movements on the group P&L.

“No transaction hedging is undertaken at subsidiary level, nor is there any other translation hedging undertaken by the group. Dechra relies on the Salmon Software TMS for the processes, information, and reporting needed to execute this strategy efficiently,” Card further clarifies.

“Dechra's approach to liquidity management and funding is reactive, using a combination of cash, committed RCF facilities, private placements, and equity funding. The company's treasury policy requires that group leverage (total group borrowings/EBITDA) be maintained at a ratio of 2:1 or below. If the ratio rises above this, it must be returned to 2:1 or below within a 12-month period.”

Dechra's investment strategy to date has been conservative, holding deposit funds only on a short-term basis because of the opportunistic nature of acquisitions and the desire of both the group and its rating agency to minimize outstanding debt. Dechra does not currently have any treasury KPIs in place.

A conservative approach to tech infrastructure

Card is a strong proponent of a policy-led treasury tech stack, rather than having software guide decision-making.

“Dechra is not an early adopter of new technology, and its treasury technology is based around proven technologies such as intercompany netting, TMS from Salmon Software, fed by MT-940 feeds from participating banks, and centralized daily zero-balancing cash pools,” he states. “Dechra has tailored these technologies to its particular requirements, especially in the areas of intercompany accounts, transfer pricing, FX exposure reporting, and dividend management.”

Dechra approaches capital structure management and debt management primarily at the time of assessing the funding structure of an acquisition. There are no hard and set rules, other than the leverage requirement to be 2:1 or below, which is a key element of the company's treasury policy.