Treasury

1.0 Introduction:

Treasury is defined as the theories, concepts and techniques that are used to ensure a business has the right amount to funds, in the right place, at the right time and in the right currency to ensure continued solvency for a given risk, within the constraints of maximizing financial returns and minimizing financial cost.

Treasury management generally refers to the set of policies, strategies and transactions that a company adopts and implements to raise finance at acceptable cost and risk, to manage its cash resources, and to reduce interest rate, foreign exchange and commodity price risks, as well as in the conduct of its relationships with its financial stakeholders.

In this paper, I will analyze the treasury management of Glaxo SmithKline plc (GSK) such as treasury structure, function, policy and control limits. First, IЎ¦d like to introduce the background of GSK. GSK was formed in 2000 by the merger of Glaxo Wellcome and Smithkline Beecham. Headquartered in the UK and with operations based in the US, GSK is one of the industry leaders, with an estimated seven per cent of the world's pharmaceutical market. GSK has 108 manufacturing sites in 41 countries that supply products to 140 markets worldwide.

2.0 Treasury organizational structure

As companies become larger, authority in treasury matters has tended to become more centralized in the interests of financial efficiency and control and at the expense of local motivation and alignment of treasury policy with local business needs. A centralized treasury operation tends to create a structure which provides sufficient scope for specialization. Within treasury, there may be separate department to manage activities such as cash management, insurance, tax, banking, etc.

A decentralized treasury operation rarely means that all treasury activities are spread among group companies. Normally, head office retains some overall treasury function to set policy guidelines, write treasury manuals, etc. A decentralized treasury is to allow each operating company within the group the responsibility and flexibility to manage their own treasury requirements.

When Glaxo Wellcome and SmithKline Beecham, two UK-based pharmaceutical giants, joined forces in December 2000 to become GlaxoSmithKline (GSK), Emerson who is CFO of GSK was trying to set up common systems across the firm. Another important issue, however, was deciding how to structure the new treasury so that it could provide the most timely and efficient services to all 41 countries