Q (gtnews): Could you outline your organisation’s global cash management structure in terms of cash management techniques, treasury headquarters and banking relationships, etc?
A (Damian Glendinning, treasurer, Lenovo): We have a highly centralised structure. Outside China, all our national subsidiaries buy their goods from a central re-invoicing entity in Singapore. This means that the trade payables due to the re-invoicing centre become the main source of funding for the national subsidiaries. It also means that, as soon as any cash is collected in any country, it is paid back to Singapore as settlement for part of the outstanding goods invoices. This provides us with a highly efficient natural and physical cash pooling. We have a separate pooling process in China, which cannot participate in the re-invoicing centre, for a variety of reasons. There, all the cash is swept daily into a centre in Beijing, and a series of intercompany entrust loans are created.
Outside China, we have been successful in keeping the number of legal entities in each country to one, with few exceptions. This means we have been able to limit the number of banks we use for cash management – in fact, we use a single bank as our worldwide cash management bank. This brings several efficiencies – one of the main ones being that we do not need to buy a treasury management system to manage transfers between banks, and we do not need to use SWIFT to make this process more efficient. All our information already resides in one place and is based on the same system.
Q (gtnews): What does your typical day as a treasurer involve? Could you describe some of your key responsibilities?
A (Glendinning): The great thing about treasury is that no two days are alike. Each one brings a series of fresh challenges.
When I am asked what my main responsibility is, I usually respond – only half jokingly – that it is to make sure that payroll gets paid. A good and efficient operation, with adequate cash to make sure all liabilities can be met, is the essential foundation for everything else we do. So I pay a lot of attention to our daily cash report – which we send to all our senior management – and the weekly updates on where we stand in terms of our cash conversion cycle. I am responsible for setting the targets for days sales outstanding (DSO), days inventory outstanding (DIO) and days payable outstanding (DPO), and tracking how the teams are doing.
After that, a key responsibility is managing our foreign exchange (FX) positions and hedging programmes. We produce a series of daily reports, which are sent out to the operating units, and I go through these every day.
The other key areas of responsibility are pensions, credit, risk management and insurance, and negotiating our funding when the need arises. The amount of time spent on each one of these items varies, as they tend to see peaks of activity – I am fortunate enough to have a very capable team that handles them, with a strong preference for a minimum of interference from me.
In addition, of course, we spend a lot of time with our bankers. It is always important to maintain good relationships, and treat your bankers as partners. We need to get the best conditions, of course, but it is important to know who you can count on when you need something.
Q (gtnews): What are your main challenges? For example, what’s on your treasury wish list?
A (Glendinning): Every day is a different challenge. Different crises come and we find a way of dealing with them. My biggest concern at the moment is complacency. One of the paradoxes of risk management is that, if you do it too well and avoid significant problems, people tend to assume that there was no risk and get complacent. This leads to a general concern I have for treasury as a whole and for our economies: as we recover from the crisis, I am not sure we have all taken the lessons fully to heart. One of the lessons from the crisis was that you should get in place solid funding arrangements while times are good – once the crisis hits, it is too late. Now is the time we should all be putting in place rock solid funding foundations, to be ready for the next storm. But I see too many organisations that are unwilling to incur the extra expense this basic form of insurance requires – why spend money for funding when times are good and we don’t need it?
The main item on my treasury wish list would be to get full straight-through processing (STP) in our transactions with banks – including the handling of payables and receivables. Some progress is being made, but this is still far too painful.
Q (gtnews): As a Singapore treasury and operating in the computer industry, are there any tax, legal or regulatory issues that you need to be particularly mindful of when it comes to the company’s cash management?
A (Glendinning): Every industry has its specific areas where regulators are more inclined to look at things. But generally, the computer business is a high volume industry with many transactions. Most of what we do is classified as goods: this avoids some of the tax and currency control issues which come with cross-border services activities and all the related withholding tax issues. Generally, we have managed to keep things simple from a regulatory and tax point of view – this makes it much easier to remain in full compliance. Again, with everything being based on goods flows, we are also able to avoid a lot of the complexity that goes with intercompany loans.
As a location, Singapore has an excellent infrastructure. All the banks have significant operations here. There are no exchange controls and the regulatory environment is very efficient and business friendly.
Q (gtnews): What steps are you taking in 2011 to make your treasury more efficient?
A (Glendinning): I like to think we already have a pretty efficient operation. Of course, this does not mean we cannot improve. Our main focus is going to be on getting the benefits out of a new enterprise resource planning (ERP) system we are installing. This will make it possible for us to go after a higher STP percentage on our receivables – there was no point investing in a system we knew we were going to be replacing. In addition, we will continue to work to reduce the number of spreadsheets.
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