A short film began proceedings on day two of the 2012 BNP Paribas Cash Management University (CMU – see day one report here), and succinctly presented the specific issues involved in cash management in the Far East. The film offered, as case studies, the experiences in Asia of three companies; luxury goods retailer Hermès, which now has 20 shops in China; the Brussels-based global biopharmaceuticals group UCB, which has set up a manufacturing plant and sales offices in the country; and French family group Roquette, a specialist in converting agricultural materials into various products, which followed its clients into Asia more than a decade ago.
Representatives from each company described the factors that can impede efficient cash management in China. Completing five or six documents is routine for completing even the simplest bank transaction; foreign currencies and any payments made abroad are controlled by the People’s Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE). The two entities impose limitations by jointly determining the renminbi’s (RMB) official exchange rate and the availability of foreign currencies on capital account items. Added to these obstacles, a global cash pooling programme that extends to include China is still not possible. Progress is nonetheless being achieved, for example with UCB now preparing to make RMB payments.
Following the film, session moderator Jack Large, editor of ‘Cash & Treasury Management File’, introduced the presenters for two individual studies that detailed the problems – and available solutions – of cash management in China and India respectively. Jackson Xu, regional treasurer for Alstom China, and Soo Tat Kua, head of global transaction banking (GTB) for China at BNP Paribas, outlined the power, transport and transmission group’s presence in China, where the group won its first contract in 1958 and opened its first representative office in 1979. Today, Alstom has 33 different entities in the country and, as Xu said, must contend with constraints that include too many bank accounts – due to the restrictions imposed by the PBOC and SAFE – and also trapped cash.
These problems are addressed by the multi-bank solution (MBS) scheme devised by BNP Paribas, which enables the group to manage its accounts with various banks via a single delivery channel that enables integrated accounts payable (A/P) and accounts receivable (A/R) processing in a secured environment. With single access for accounts from different banks, the MBS system restructures clients’ instructions and third party bank reports to standardised SWIFT messages, and provides secured payment file transportation between the client’s enterprise resource planning (ERP) and BNP Paribas, using the bank’s Connexis internet banking solution.
For Alstom’s worldwide cash management operations, Xu said that the group is following a policy dubbed EASE (Efficiency, Acceleration, Simplification and Empowerment). Efficiency is derived from sharing processes across various banks – particularly for payment processes and treasury expertise; Acceleration comes from using a common payment platform and tools; Simplification is achieved through an integrated treasury organisation and MBS model for the ‘three pillars’ of units, banks and regional treasury centres; and Empowerment is represented in the regional treasury centres.
Kua held out hope that the recent election of new leaders in China, which is likely to see Li Keqiang named as the country’s new premier, should herald rapid deregulation, which will enable corporates to set up a centralised treasury in one city that conducts transactions on behalf of all of a group’s various entities across China. The changes are likely to be announced later this month, on 17 December.
Cash Managing a Co-operative
When introducing the next speaker, Atul Kumar Agrawal, head of finance for Amul Gujarat Co-operative Milk Marketing Federation – abbreviated to Amur (GCMMF) – Large remarked that India presented its own and very different cash management challenges from China.
Amul’s story is an interesting one. Beginning in 1946 as the Kaira District Co-operative Milk Producers’ Union, it has steadily grown into the largest milk brand in Asia; a US$2.5bn business that is still based on the principles of a co-operative and is owned by India’s farmers.
Agrawal said that a significant proportion of Amul’s clearing settlements are still paper-based, and India’s vast geography and the numerous settlement cycles involved produced many complexities in processing. New banking solutions were now addressing these difficulties and BNP Paribas offered the co-operative post-dated cheque management, safe custody of cheques, centralised storage and confirmed credit agreement.
The key features of the new technologies were outsourced solutions, an automated environment and cost efficiencies. Amul was now working towards the adoption of electronic receipts (e-receipts), through the creation of virtual accounts, instant credit accounts and seamless electronic transactions.
“Our members have welcomed the move to e-receipts, although cheque usage is likely to continue for some time yet,” said Agrawal. “Because they have trust in Amul, farmers are ready to support the transformation from paper-based systems to some of the world’s most modern electronic systems available.” These include direct debiting and remote data capture to eliminate the need for storing cheques, using pull technology for which dealers sign up through a one-time mandate basis, and also an instant fund transfer option using mobile phones, which provides 24/7 availability.
Technology as an Enabler
As with the afternoon sessions on Day One, mid-morning on Day Two offered delegates a choice of workshops respectively covering the use of new technologies to connect, share and innovate; reducing complexity and managing costs in an international business environment; or bank account management (BAM) as a means to streamline payment processes and enhance banking relationships.
Those attending the technologies session heard from three speakers. First was Palle Dedenroth, assistant treasurer for Danish group Danfoss, which has annual sales of €4.6bn for its mechanical and electrical climate and energy components, which include refrigeration and air conditioning controls and radiator thermostats. He was followed by Damian Preisner, global treasury at SAP and Arnaud Dupuy, sales manager – corporate business for Europe, the Middles East and Africa (EMEA) at SWIFT.
Dedenroth described how Danfoss is a global business, involved in business to business (B2B) with various industries, with the bulk of its sales coming from the European Union (41%), North America (24%) and Asia (16%).
From a treasury perspective, the group’s global footprint presents a significant foreign exchange (FX) risk and its 3.4bn Danish kroner (DKK) debt pile, although having been significantly reduced in recent years, represents an interest rate risk. Danfoss must also address commodity risk arising from its mechanical and electronics manufacturing and transaction risks and costs from its presence in many of the world’s emerging economies, including the BRICs (Brazil, Russia, India and China).
Dedenroth said that Danfoss’s corporate treasury team, consisting of nine individuals, had pledged to provide the group with “innovative, scalable and cost-competitive solutions” in the key areas of bank funding and the capital markets; financial risk management; cash and liquidity management; and centres of excellence for corporate finance issues. The team also handled the group’s insurance.
This remit had been reflected in the group’s ‘best practice’ programme, preparation for which began in Q3 of 2008 that recognised that Danfoss’s ambitious global growth targets would present challenges for treasury. The implementation project, approved in August 2009, began the following January with the election of implementation partners and went ahead despite the global financial crisis and its impact on the group’s sales. It involved close cooperation between the treasury team and the IT department, as well as various other group stakeholders.
The project was all about reducing complexity in the group’s communications with its banks and attempting to standardise formats wherever possible, said Dedenroth. Its achievements included the setting up of an in-house bank (IHB), with one single bank accounts allotted to each Danfoss subsidiary, internal credit lines and cash pool management. It had also established bank connectivity via SWIFTNet, and the bank was now able to reduce its volume of international payments and instead make more local payments.
The best practice project had produced some valuable lessons for the group, said Dedenroth. Among them were:
- Involve all relevant stakeholders as early on as possible.
- Split the project into smaller individual parts.
- If several different SAP systems come within the project’s scope, get the master data and attempt to align the processes at the earliest stage possible.
In all, the project had proven the business case for an IHB and achieved the main targets of reducing external credit facilities, reducing cash balances, achieving savings in value days as well as FX transactions, with further savings derived from aligning processes internally.
The final event of Day Two was a plenary roundtable, moderated by Helen Sanders, editor of ‘TMI’, entitled ‘The Vision of Three Corporate Clients – What are Your Priorities for Next Year’? The panel comprised Anna Olsson, head of cash management for Atlas Copco, producer of mining and construction equipment, compressors and industrial tools, Ian Boardman, vice president treasury at NBC Universal and Richard Oxley, treasury manager for Australian packaging group Amcor.
In an informal session, it was revealed by Boardman that NBC Universal set its focus on compliance with the requirements of the single euro payments area (SEPA) compliance this year, ahead of the 1 February 2014 deadline. “I was shocked to hear [from the Treasury Barometer survey released on Day One] just how many corporates haven’t yet started to address SEPA compliance,” he said. “There’s not much time left and a great deal to do.
“Some corporates have said that they expect their banks to handle the issue, but banks can’t change your ERP or your data. And SEPA transfers have to be wing-to-wing XML messaging. If you haven’t yet started on SEPA, I’d urge you to do so as soon as you get back to the office.”
Both Olsson and Oxley revealed that their company has dramatically reduced the number of banks that it uses for treasury activities. Atlas Copco originally had a total of 60 and as recently as a year ago Amcor used between 30 and 40 banks in Europe and three or four cash pools. Both companies have reduced the number to just BNP Paribas and two others.
Boardman said that NBCUniversal has cut the number from 13 banks to six in the past 18 months, using a zero balance account (ZBA) structure and pooling by currency. “We’ve taken advantage of our SEPA ability to cross-border sweep,” he added.
“A big challenge for the business is to get forecasting right, as it’s difficult to predict exactly which parts will perform. Our financial planning and analysis (FPnA) team’s focus is on profit and loss (P&L) and we had to get them focused on actual cash.”
Sanders also asked the panellists what would be on their ‘wish list’ for 2013. “We’d like banking to be easier, particularly collecting money from our North African customers and getting cash out of Venezuela; things generally beyond the bank’s control,” responded Oxley.
“We’d also like to see standardised documentation in different countries, as well as eBAM instead of documentation for account openings and changes.”
Summarising the two days of the CMU in his concluding remarks, Pierre Fersztand, global head of cash management for BNP Paribas Cash Management said that it had been marked by much discussion on rationalisation, standardisation and liquidity. It had also demonstrated that different corporates have a variety of approaches towards processes, forecasting and their relationship with their subsidiaries. “We must accompany you on your different approaches towards the same goals,” he said.
“This means flexibility, fitting in with your specific needs, but at the same time combining it with simplicity. And overall, 2012 has been a good year as regards progress towards achieving these goals.”
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