Prescription for growth

As a Mena treasury manager of one of the Middle east’s leading corporates, and its biggest pharmaceutical manufacturer, EYAS QUIDEMAT is in a prime position to drive the company’s growth plans – and demand more from its banks.

Eyas Quidemat is the MENA treasury manager for Middle East pharmaceutical giant Hikma. As a major manufacturer of drugs, hikma leads the way in the Mena region and is one of the few indigenous producers to go head-to-head with the leading players across the world.

Founded in 1978, the company listed on the London stock exchange in 2005 and has since seen revenues reach $580m, taking it into the fTse250.

Hikma currently sells 369 pharmaceutical products in 49 countries, in 767 dosage strengths and forms. forty of its products are sold under promotion and distribution agreements with, or licences from, 16 originator pharmaceutical companies and three generic pharmaceutical companies.

Quidemat oversees the treasury function based out of amman. he sits at the centre of a function that manages the company’s cash management, budgeting, forecasting and trade finance capabilities.

Hikma is upfront about its objectives, comprising three core aims:

■ To consolidate its our strong market position in the Mena region by launching new products, expanding geographic reach and increasing market share

■ To grow its injectable business by expanding its product portfolio, developing manufacturing capabilities and strengthening its sales and marketing network

■To continue to pursue profitable growth and maintain significant cash generation in the united states by focusing on high margin, niche product opportunities.

In order to finance consolidation within its stronghold of the Middle East, as well as expansion in its newer markets, Quidemat and his treasury team are charged with ensuring that adequate funding facilities are in place, while cash flows maintain a healthy level. In an exclusive interview with Cash & Trade, Quidemat explains how he gets the best from banking relationships, manages the complex demands of a growing business, and what he hopes to see in the MENA region’s banking sector over the coming year.

How important is system integration with Hikma’s banks?

Most of our work in the Mena region faces a few problems in terms of getting a treasury system up and running between banks and the company. This is due to a few factors. Within the region there are some countries where there is already a sanction implemented, so First Person that’s an obstacle to a clear treasury system which would include all the countries in the MENA region. It’s fair to say that europe and the us don’t face that problem and the technology exists far better there. so it’s something we need to deal with as a company.

What is your take on the levels of service that you receive from both local and multinational banks?

The MENA region does have the big foreign banks and with them we don’t have any problems at all, largely since their technology systems are perfect for our use. If we need payment products we can get them. and as an added benefit they will be happy to customise products and services for us, which helps.

The local banks do present some problems in the area of producing the right products for us, for example hedging for FX and interest rates. and then internet banking: the whole system of collection procedures and so on is yet to be resolved. More recently – and more positively – the past two years have seen many new techniques emerge that we have found helpful for our company, like real time gross settlement (RTGS), besides all the trade finance which has developed along the lines laid down by the standards setters here. Basically, there is flexibility and usefulness in the products offered by multinational and foreign banks, but the regional ones need to do more.

Hikma is a listed company. Do you think your shareholders are interested in your banking arrangements?

Obviously it’s important to shareholders – if only for the purposes of image. They want to know who the banks are that you work with, which financial institutions you do business with. and of course that gives them a better idea of the risks that you carry. I firmly believe that the appetite for hikma’s shares will be higher the more we share. and it’s one of the reasons we keep good relations with banks in the region and beyond.

You mention the issue of regulations in the region: do you believe these are holding back the spread of better banking services, and perhaps damaging trade in the MENA region?

Well, when you talk about regulations you need to be aware that some of them are unstable in this region. you have to face that.  Look at Algeria – they moved to transfer all the trade finance to LCs. Whatever you or your customers have in Algeria, they should open a LC to you in order to ship to them. so this is a limitation on importation to Algeria unless you’re a good, well-known customer known to them. so they can have a limit with a bank but they cannot open an LC or you can’t sell to them because the Central bank of Algeria demands you open an LC for trade finance. That’s just one example.

What would you like to see Middle Eastern banks do to improve their offering to you?

When we talk about pooling and layering, then that is an area to address. It’s a fact that you don’t find a bank here to offer pooling through the MENA region or on a global basis. That means there are not banks to give you that technology and flexibility in order to deal with the regulations in the various countries. so I believe there should be more co-operation between the financial institutions and the banks to address this.

The issue of transparency is one that has yet to fully take hold in the Middle East. How does Hikma approach this issue in its banking arrangements?

 I think that should be a basic thing between banks and corporates. The plain fact is that transparency in your banking relationships will simplify and normalise the long-term relationship between the two parties. If you have that then you will have a long-term relationship. being transparent gives confidence about yourself and your company. The banks should do this too – it’s a mutual thing that both sides need to address. Of course, as a listed company we have to be like this – we have disclosure rules to follow, and all the necessary rules and standards are complied with across the board.

Turning to Hikma’s treasury operation. Do you follow a centralised model or have you gone for a more decentralised approach?

 It’s a combined model here – neither entirely centralised nor decentralised. Whatever we need, we have the capability. Treasury operation needs to serve regional, country, company-wide demands. That means that basic transactions that occur on a daily basis don’t need to go back to the centre every time – it’s a big loop that we’ve designed here. Of course for some decisions it has to be centralised. Take, for example, a financing or hedging need – that would require a strategic decision from the centre. but I believe that what we’re doing now on a daily basis is largely decentralised. When it comes to company policy, it’s a question of putting in place a set of procedures and processes in the middle for the rest to follow. so it’s a combination of both. for the more strategic stuff, then it is a centralised process.

Presumably you need to ensure that your treasury managers are aware they are being monitored and that they need to abide by company policies in this sensitive area?

Exactly – it’s a very important point: we have to control the business. On a daily basis, the decentralised model works, but we notice everything that’s going on and we can follow up anything that we need to. be that a banking relationship issue, or something in the area of customer management. If anyone exceeds limits then we can deal with it. They need to know they are being monitored. Incidentally, I believe at Hikma we have the only system of its kind in the region: we separate the treasury function from the other finance functions. The financial controller and the budgeting are on one side, and we have an isolated treasury function that deals with all departments – procurement, reporting and so on.

Is it hard to find the expertise to manage such a system?

All the treasurers we have working in the department have banking experience, so they come to us having worked on the other side of the fence. They’ll also have accounting and financial qualifications; we look for a mix of experience. all in all, this approach has a really good effect on how you manage your treasury function. and, of course, it makes it easier to negotiate with banks because our staff know exactly what they need to produce and how to manage that – what documentation they need, how to follow up on matured loans, when to ask for a financing, when to ask for a loan, how to reorganise your hedging policy or look at your exposure and so on.

How do you feel the banks in the region were affected by the credit crunch?

 To be honest the crisis hasn’t had a major effect on us. Why? Our management and forecasting was pretty good so that gave us a good advantage to hold our market position and even go for growth in some areas. On the other side, we noticed that some of the banks were looking to raise their prices on various products and services. so for us it was about having clear contracts with the banks and being totally transparent with them about our needs and our position. Thankfully we are managing have a good balance sheet – as you can see from the financial results which listed on our web site. Cash flow is healthy and that gives you a great advantage with the banks, particularly if you are dealing with that bank across many regions. so we have the same view of your operations across the world, and that means many banks would like to work with you.

How important is a long-term relationship with your banking service providers?

 The banks that you work with tend to be historical relationships – if they’re clever they will not sacrifice their cherished business relationship with you, because they have a good history with you that in some cases goes back 10 or 20 years. They know that in the past they made a profit and a gain from the relationship. so it’s a win-win relationship for them. I believe it’s not easy to come to us and ask to raise prices. Of course it’s understood if sometimes they do, but they can look at our balance sheet and cash flow, and that always looks good, and then they understand your position.

Which goes back to transparency?

Exactly – they have a clear and transparent history with you. They know your business, your model, your people, and your management. They know your forecasts are accurate and true, and that you run your company properly. so if the risk is low for them then they won’t sacrifice the relationship for short-term gains through price rises.

Continuing with the credit crunch, have you seen much of an effect on your customers and suppliers?

There have been effects of course. but thank God we’ve managed to keep a good working relationship with both suppliers and customers. I think, ironically, for some suppliers in the marketplace it has been a beneficial time. for the wholesaler, they have had a refreshment of their customers so they’ve benefited. Maybe not for the retailer. so there’s bad and good effects for different people. When you have a good position in the market you can survive times like this. We’re working across regions so we can afford some negatives in some regions because there are positives elsewhere. It’s a little like hedging in a way. at times like these, it’s a good thing to have that balance. ■