The business and consumer environment in Saudi Arabia has changed significantly in recent years in line with evolving economic conditions. Consumers have become more cautious in their spending habits and more price-sensitive than in the past when purchasing not only luxury goods, but everyday items too. Although Alhokair is the number one retailer in the region, we have transformed our business to become more competitive and focus more on international growth. Treasury is part of this transformation, not only in its own operations, but also by playing a key role in supporting the business to become more competitive and continue its international expansion.
Although Alhokair has had substantial international operations for some years, particularly in the CIS countries, the scale of these operations has not been sufficient to justify setting up a treasury function. However, when I joined the organisation around a year ago, I realised the potential value that treasury could offer in supporting both our domestic and international operations more effectively. Although our international operations represented only around 10 to 15% of our turnover, this is a substantial figure on a $2bn turnover business, with foreign exchange risk becoming a more significant issue due to the need to manage local operations in each country and to settle supplier’s dues in foreign currency.
While Saudi Arabia remains our core market, delivering 85-90% of our revenues, the new, more constrained environment means that our margins have been squeezed so we need to manage cash, working capital and shareholder value more carefully across our footprint.
We therefore made the decision to build a more substantial central treasury function to serve the group more efficiently, initially to manage trade finance, which is a substantial activity for us. For example, if we open a new store in Georgia, we need to set up a guarantee, which we now issue centrally from KSA. We now manage SAR1bn (equivalent to around $300m) of guarantees, letters of credit and other trade finance instruments centrally. Group financing is also managed centrally, both upfront when a new store or entity is established, and on an ongoing basis. We also manage FX and interest rate risk, and around $1bn in debt.