SIMPLIFYING DAILY BANKING YOUR BUSINESS IS TURNING WASTE INTO WATTS. OURS IS GENERATING THE FUNDS. Shanks Group plc specialises in innovative waste management. We issued a £57,5m guarantee that is helping them realise a new waste-to-energy project in the UK. That’s how we’re supporting sustainable business. www.ingcb.com USOF_97396_TMI_November_ING_CB.indd 1 10/21/13 11:37 AM TMI221 ING RP P1 Contents_Contents_Germany 05.qxp 09/12/2013 09:13 Page 1 SIMPLIFYING DAILY BANKING SIMPLIFYING DAILY BANKING Published by Contents Treasury Management International Ltd Waney Edge Barn, Foxhill Lane, Playhatch, Reading RG4 9QF, UK Tel: +44 (0)118 947 8057 Fax: +44 (0)118 947 8062 2 e-mail: tmi@treasury-management.com Internet: www.treasury-management.com Helen Sanders Editor Commissioning Editor Copy Editor Caroline Karwowska Robin Page Publisher’s Assistant Sam Clarke Design & Production Glen Orford Head of Digital Development Webmaster Robin Page, Chief Executive, TMI 3 Elizabeth Hennessy CEO & Publisher A True Partner Bank ING’s success in Central and Eastern Europe Andre Rijs, Global Head of Sales Transaction Services US, CEE, UK, ING 5 Harry Edwards Fluor Corporation Optimises Cash Management in Europe Martin Blom, Finance Director, and Arno van Slooten, Manager Accounts Payable, Fluor B.V. Richard Benwell Printed in England by Micropress Printers © 2013 P4 Publishing Ltd Registered in England and Wales No. 05838515 TMI-TREASURY MANAGEMENT INTERNATIONAL, ISSN 0967-523X, is published monthly (except July and December) by P4 Publishing Ltd, Waney Edge Barn, Foxhill Lane, Playhatch, Reading RG4 9QF, UK. The 2013 US annual subscription price is $400.00. Airfreight and mailing in the USA by agent named Air Business Ltd, c/o Worldnet Shipping Inc., 156-15, 146th Avenue, 2nd Floor, Jamaica, NY 11434, USA. Periodicals postage paid at Jamaica NY 11431. US Postmaster: Send address changes to TMI-TREASURY MANAGEMENT INTERNATIONAL, Air Business Ltd, c/o Worldnet Shipping Inc., 156-15, 146th Avenue, 2nd Floor, Jamaica, NY 11434, USA. Subscription records are maintained at Waney Edge Barn, Foxhill Lane, Playhatch, Reading RG4 9QF, UK. Air Business Ltd is acting as our mailing agent. 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Subscription enquiries Sam Clarke, TMI Telephone: +44 (0)118 947 8057 Fax: +44 (0)118 947 8062 sclarke@treasury-management.com TMI | www.treasury-management.com 8 Leveraging Innovation to Support a Fast-growing Organisation John Colleemallay, Senior Director, Group Treasury & Financing, Dassault Systèmes 12 Innovation and Precision in Managing International Project Risks Bert van der Donk, Treasury & Risk Manager, NEM Energy B.V. 15 Addressing Cash Management Complexity in Turkey through a One Bank Strategy Jennifer Tan Sue Een, Treasury Manager, Europe & Africa and Mario Del Natale, Director Treasury Operations, Systems & Applications, Johnson Controls 1 TMI221 ING RP Intro_Layout 1 09/12/2013 09:19 Page 2 insight A True Partner Bank by Robin Page, Chief Executive, TMI W e are delighted to produce this booklet in partnership with ING, with whom TMI has a longstanding and valued relationship. With its extensive footprint across 28 countries in Europe plus a global network, ING combines local expertise with integrated pan-European capabilities to deliver a range of solutions required by companies as they expand internationally. One key aspect of its work is Robin Page its emphasis on the simplicity of banking business – it recognises that commercial business is complex and challenging but believes strongly that ING should provide consistent solutions, reporting capabilities and banking channels for its clients. It is also streamlining its implementation approach and simplifying documentation. A key aspect of ING’s approach is its emphasis on the simplicity of banking business. 2 All this points to a culture of partnership hardwired into the bank, and this booklet provides some interesting examples of partnership in practice. The article by Martin Blom and Arno van Slooten describes how their company, the leading global engineering and construction company Fluor enjoys a successful relationship with ING and close co-operation with ING’s subsidiary Bank Mendes Gans (BMG). Together they have put in place a notional cash pool and implemented a payments hub which channels payment files through SWIFT. Rick van Doggenaar of ING’s Transaction Services notes how the bank has supported Fluor throughout the past seven years. Also headquartered in the Netherlands is NEM Energy, a global leader in heat recovery steam generators and associated equipment, whose Treasury and Risk Manager Bert van der Donk discusses how the company uses trade instruments in combination with other approaches to help manage collections risk that derives from both individual consumer credit risk and wider political risk. Outlining the firm’s partnership with its bank, ING’s Jean Bonnet says that the two have enjoyed a relationship extending for more than a decade, and points out that an important part of ING’s service offering is to “offer solutions that meet the individual cash and risk management needs of each of our customers and the projects in which they are engaged, fulfilling the role of a true partner bank”. The impact on the company of its recent geographic expansion and financial process optimisation, including establishing regional shared service centres, is the subject of the article by Jennifer Tan Sue Een and Mario del Natale of Johnson Controls. Their company works with ING and BMG in Turkey as well as many other countries in EMEA, where the bank provides domestic as well as international cash and treasury management services: Rick van Doggenaar of ING points out that the strength of the relationship between Johnson Controls and ING is “largely based on the close alignment between the two parties at both a local and regional (treasury) and HQ level, and effective communication”. John Colleemallay of Dassault Systémes, a world leader in 3D design software, describes how his firm has experienced enormous growth since the company was founded in 1991, with a “culture of dynamism and innovation inherent across the entire business, not least in treasury”. He itemises some of the most recent innovations, including rationalising cash management, implementing global multi-currency cash pooling and process and technology harmonisation. These have all been achieved in partnership with Bank Mendes Gans, whose Managing Director Cash Management, Saskia van Nes, adds that centralising cash has become a priority for organisations of all sizes, whether or not their objectives are to reduce the need for external funding or optimise the return on cash, with the result that a growing number of companies, like Dassault Systémes, are approaching BMG to implement a multi-currency cash pooling solution. This bank-wide emphasis on partnership has, unsurprisingly, resulted in ING being chosen for one of TMI’s 2013 Awards for Innovation and Excellence, in this case for Best Cash Management in Eastern Europe (for the second consecutive year). Andre Rijs, Global Head of Sales for ING’s Transaction Services in CEE, UK and US, gives a bird’s eye view of the financial and economic conditions in Central and Eastern Europe, which as he points out has weathered the financial and economic crisis better than Western Europe, with significantly lower levels of government debt. Rijs expresses the particular pleasure taken by ING in this award ”as we know our clients have given us this accolade”. The bank’s knowledge and understanding of local market conditions and developments allow it to take a proactive approach to the challenges facing its clients, and he details the significant changes made in July 2013 to the way it provides transaction services; “instead of individual product teams, we now adopt a holistic approach to our clients’ needs through transaction banking consultants who can deal with multiple product areas and find the most appropriate solution”. ■ TMI | www.treasury-management.com TMI221 ING_Layout 1 09/12/2013 09:20 Page 3 insight 3 ING’s Success in Central and Eastern Europe by Andre Rijs, Global Head of Sales Transaction Services US, UK, C&EE, ING Commercial Banking M ultinational companies often divide the world into distinct regions for payments and cash management in order to maximise efficiency and minimise costs. These regions are determined not only by geography but also, to a certain extent, by shared characteristics. As a result Central and Eastern Europe (CEE) is often treated as a separate region in Europe. The irony is that CEE is an incredibly diverse region. And that makes it so interesting. TMI | www.treasury-management.com Since 2008 CEE has weathered the financial and economic crisis better than Western Europe, with significantly lower levels of government debt. Weak growth in much of the developed world is prompting multinationals to seek new growth opportunities and markets with increasing demand and high margins. Many countries in CEE – most notably Turkey with its rapid growth rate and strong demographics – fit that description perfectly. Conditions continue to improve in the region from a payments 3 TMI221 ING_Layout 1 09/12/2013 09:20 Page 4 insight and cash management perspective. Some countries, such as Poland, have reached a stage in their development where they are largely indistinguishable from Western European countries in terms of their financial market infrastructure and operating environment. Nevertheless the markets in the region remain challenging. Broadly speaking the further east one travels the more complex payments and cash management becomes. In Ukraine, for example, interest rates are extremely volatile and the country’s regulatory environment is closed. Consequently multinational companies seeking to operate in CEE must be flexible in the way they approach this diverse region that spans open, euro-denominated economies as well as closed economies with currency controls. For corporates that operate in multiple CEE markets it is therefore essential to work with a bank that has on-the-ground knowledge and expertise of relevant market and regulatory conditions. We are therefore delighted to receive the TMI award for Best Bank Cash Management Eastern Europe for the second consecutive year, particularly as we know that our clients have given us this accolade. We also see it as recognition of ING’s history of expertise in this market and our commitment to the region. We are proud to say that we have been an integral part of the banking industry in CEE since the late 1980s with our presence in the nine most important markets in this growing region. This presence extends beyond payments and cash management to a full-service commercial banking operation. In Poland, for example, ING operates a full network 4 with 300 branches. Our knowledge and understanding of local market conditions and developments enable us to take a proactive approach to the challenges facing our clients. An example of this is Hungary, where ING informed its clients in a timely manner about the implications of the introduction of transaction tax. We have invested heavily in solutions including electronic cash vaults that allow cash collections to be posted to company accounts on the day of collection (i.e., before physical delivery to the bank) by installing deposit machines on the clients’ premises. ING has also introduced virtual accounts that allow companies such as utilities to create virtual accounts for their customers so that payments are easy to reconcile. In every market we operate ING behaves and acts as both a local and international bank, combining the benefits of flexibility and standardisation. That means that ING can provide all local products and services, such as domestic payment instruments. However, we also offer all our products and services with standard international terms and conditions, making it easy for our clients to manage their relationship with us while providing service and customer support in an internationally consistent way to give our clients the control and visibility they need across multiple countries. And we can also connect the solutions we provide in CEE to any global solution in Asia, the US or anywhere else where our international clients do business. In July 2013 we changed the way we provide transaction services to better reflect how our clients operate. Instead of individual product teams, we now adopt a holistic approach to clients’ needs through transaction banking consultants who can deal with multiple product areas and find the most appropriate solution. The integration of payments and cash management with working capital solutions and trade finance services (including supply chain finance, traditional trade finance products such as letters of credit, and the ability to access independent trade finance platforms) is not only aligned with how corporate treasuries are organised but also ensures that solutions are structured to optimise efficiency, maximise benefits, reduce risks and lower costs. ■ www.ingcb.com André Rijs Global Head of Sales Transaction Services C&EE USA and UK, ING André has over 15 years’ experience in banking, having joined ING in 1997. After working for Nissan Europe for four years he started at ING Bank International Securities Lending and moved via Bank Mendes Gans to ING Central & Eastern Europe as a senior product manager. Subsequently he joined Payments & Cash Management Product Sales in Amsterdam and is currently responsible as Global Head of Sales Transaction Services, for Central and Eastern Europe, the USA and the UK. TMI | www.treasury-management.com TMI221 ING RP Art2_Layout 1 09/12/2013 09:21 Page 5 insight Fluor Corporation Optimises Cash Management in Europe by Martin Blom, Finance Director, and Arno van Slooten, Manager Accounts Payable, Fluor B.V. A s a leading global engineering and construction company, Fluor has had a long-standing presence in Europe. The Netherlands office was established in 1946 and acquired by Fluor in 1959. Managing cash and risk is a key treasury responsibility. In cooperation with its US headquarters, the Netherlands treasury group is responsible for over 20 legal entities and branches across mainland Europe. This article outlines Fluor’s successful relationship with partner bank ING, which has resulted in considerable financial and operational efficiencies through a series of transformational initiatives including notional cash pooling and a SWIFT based payments hub. A partner in business At ING, we have been a proud partner for Fluor for the past seven years. TMI | According to Martin Blom: “We have a large multi-currency credit facility in the United States and typically, we try and offer our ancillary banking business to the banks that participate in this facility wherever possible. As a result of our financing relationship, we evaluated ING’s cash management services in Europe to understand synergies between the organisations. We were very satisfied with the solutions and services that ING offered, and appointed the bank in 2006 for European cash management services. This relationship has progressed very successfully both in terms of day-to-day banking and transformation initiatives that we have undertaken together. “Our treasury centre in the Netherlands has responsibility for cash and treasury management activities in mainland Europe. We have set up entities in each country in which we operate, each of which needs its own bank account for supplier and employee payments. We use SAP for cash management and accounting and produce batch payments files which are www.treasury-management.com “At ING, we have been a proud partner for Fluor both in Europe and globally for the past seven years. ING recognise the importance of delivering solutions that meet Fluor’s needs precisely, a disciplined project approach and a commitment to offering added value in all aspects of our relationship. Consequently, we have been able to support Fluor’s day to day payment and cash management needs, but also its transformation projects in areas such as innovative notional cash pooling and centralised payments processing, therefore enabling both its operational and financial efficiency objectives.” Rick van Doggenaar, Regional Manager – Corporate Sales US, Transaction Services, ING 5 TMI221 ING RP Art2_Layout 1 09/12/2013 09:21 Page 6 We first implemented the cash pool in the Netherlands and have rolled it out to over 40 legal entities and branches. Fluor Corporation Fluor Corporation is one of the world’s largest publicly traded engineering, procurement, construction management (EPCM) companies. Over the past century, Fluor has become a trusted global business leader by providing exceptional services and technical knowledge across every phase of a project. Fluor design, build, and maintain many of the world’s most complex and challenging capital projects, working with governments and multinational companies across a wide variety of traditional and evolving industries worldwide, including chemicals and petrochemicals; commercial and institutional; government services; health-care; life sciences; manufacturing; microelectronics; mining; oil and gas; power; renewable energy; telecommunications; and transportation infrastructure. Fluor has 41,000 employees across a network of offices in more than 30 countries across six continents. In 2012, Fluor generated revenues of $27.6bn, with a five-year annual revenue growth rate of more than 10.5%. forwarded to ING. We have a local multiused facility with ING in the Netherlands to allow occasional overdrafts, but primarily to allow ING to provide bank guarantees. Typically we give guarantees to customers for advance payments or performance guarantees. Smaller guarantees (e.g., under €2m) are issued within this facility, although specific credit lines are set up for larger ones, supported with a parent company guarantee.” 6 Cash pooling and intercompany netting In addition to our daily banking and guarantee requirements, our close cooperation with ING also includes its subsidiary bank, Bank Mendes Gans (BMG). By working with BMG, we were able to implement a global notional cash pool to improve liquidity and risk management monitoring. We first implemented the cash pool in the Netherlands and have TMI | subsequently rolled it out to more than 40 legal entities and branches across the world, while the number of participants is still growing. As we had hoped, this has proved a very effective liquidity management tool. A challenge that we had always experienced in the past is that profits are generated and maintained within each entity. We only centralise this cash to issue dividends when it is costeffective to do so, which may be every six to seven years, and cash remains with the www.treasury-management.com TMI221 ING RP Art2_Layout 1 09/12/2013 09:21 Page 7 insight local entities in the meantime. Before implementing the BMG notional cash pool, this cash was effectively ‘trapped’ in each country, offering no value to the wider enterprise. We have implemented cash concentration in some cases too, so the combination of physical and notional pooling enables us to manage both our liquidity and risk management requirements effectively. Having put in place the BMG notional cash pool, we have also been able to introduce an intercompany netting solution to settle intercompany invoices costeffectively and automate the production of the resulting account postings. It is important to settle intercompany invoices regularly to avoid these amounts being treated as loans for tax purposes. Payment factory and SWIFT Although we need to make payments to suppliers, government authorities and employees in each country in which we do business, we recognised the importance of consistent processes, controls and bank communication. We therefore decided to implement a payments system that would continue to enable local payments execution whilst i) harmonising formats based on ISO 20022 standards, and ii) channeling payment files through a single bank-neutral channel, for which we selected SWIFT. We piloted the project with ING initially and have subsequently approached our local banks to roll out the payments hub. Our banking partners have been very supportive of our harmonisation and standardisation objectives and are willing to accept the ISO 20022 format. Implementing a payments hub will deliver a number of efficiencies including: ● ● ● Our cost and maintenance efforts will be reduced as a result of replacing local banking systems with SWIFT; Similarly, we no longer need to maintain interfaces of each local banking system and instead, we have a single interface to SWIFT which is managed by our service bureau; As SWIFT is a bank-neutral communication channel, we can add or change our payment banks without changing our payments or connectivity infrastructure. In addition to cost and efficiency advantages, we will achieve more consistent controls as separate user rights and profiles no longer need to be set up in each banking system. With a more streamlined environment, and with the support of a specialised service bureau, it is also easier to concentrate expertise and to pinpoint and resolve problems. We were already using SWIFT AllianceLite, but we now have a full implementation underway with our service bureau partner. We expect to have completed our payments hub and SWIFT project by the end of 2013. rationalise our bank accounts. We currently have more than 900 accounts across multiple banks globally which leads to considerable challenges in managing permissions, and establishing consistent controls over account opening and closing. Once we have reviewed and rationalised our account structure, we will be able to consider more efficient means of bank account management. We expect to have completed our payments hub and A positive partnership We were early adopters of electronic banking solutions, having implemented first generation electronic banking tools in the Netherlands in the early 1990s. The implementation of SWIFT as a key element of our payments hub is an important new step in this journey to achieving highly efficient, automated payments and cash management and industry best practices. Working with ING has facilitated this progression whilst also enabling our wider cash and treasury management objectives with efficient day-to-day banking and cash pooling structures that meet our cash, liquidity and risk management needs. ■ SWIFT project by the end of 2013. Arno van Slooten Future developments In the long term, we may develop our payments hub further by centralising payments execution as part of a wider Fluor strategy to expand the range of functions currently supported through our Global execution centres in India, Poland and Philippines. We are also embarking on a project to Manager Accounts Payable, Fluor B.V. Arno joined Fluor in 1976 and is based in Fluor’s Haarlem office. Arno has a long career across a wide range of finance activities. He has been a pioneer of integrated solutions between Fluor and bank systems ever since the early 1990s. Before his current appointment, his role as SAP country implementation manager involved projects in Poland, the Czech Republic, several locations in Russia, Kazakhstan, Belgium and Spain. Rick van Doggenaar Regional Manager Corporate Sales US, Transaction Services, ING Martin Blom Finance Director, Fluor B.V. Rick started his career as account manager for ING’s corporate clients in The Netherlands in 2008. In February 2012, he decided to join the Payment and Cash Management US Team. In this role, he is the single point of contact for US corporates and responsible for addressing their payments and cash management-related challenges across the entire ING network. Rick has a vast knowledge of the European corporate banking environments. Over the years, he created an extensive network within ING to ensure excellent service and perfect execution for his clients. TMI | www.treasury-management.com Martin started his career in management reporting at Ford Motor Company and General Mills before joining Fluor in 1983. He is based in Fluor’s Haarlem office and responsible for the Dutch finance operations including treasury for over 20 entities and branches throughout mainland Europe. 7 TMI221 ING RP Art3_Layout 1 09/12/2013 09:22 Page 8 Courtesy of ISD Valenciennes Leveraging Innovation to Support a Fastgrowing Organisation by John Colleemallay, Senior Director, Group Treasury & Financing, Dassault Systèmes D 8 assault Systèmes (DS) is a fast-growing innovator, and has experienced a doubling in revenues to over €2bn in the six years between 2006-2012. Treasury has had a major role in DS’ achievements so far, and is critical to delivering on its strategic vision of the future. DS’ financial position differs from many organisations in that it has zero TMI | www.treasury-management.com TMI221 ING RP Art3_Layout 1 09/12/2013 09:22 Page 9 insight net debt. However, centralising cash balances and enhancing the efficiency and automation of processes across the business is no less important. By optimising the use of cash, funding working capital requirements without the need for external borrowing and reducing costs, treasury is helping DS to invest in new technologies and innovation that will drive growth and further increase customer satisfaction. This article outlines some of the recent initiatives on which treasury has embarked and how these contribute to DS’ strategic vision. Figure 1 - Multicurrency global cash pooling with BMG TREASURY REA ASU BMG Pooling Structure ● ● ● ● ● ● Treasury is organised regionally, with common processes, policies and systems; We have reviewed our bank relationships and connectivity globally to ensure rapid, secure access to our cash assets; We have an active risk management programme with constant monitoring of our market and credit risks; We have reviewed our corporate legal structure with a view to promoting simplification and transparency; We have centralised and harmonised core processes such as payments on a global basis; We have been early adopters and champions of technology such as XML, SWIFT and 3SKey to promote and enhance standardisation and security across our treasury processes globally. On DS Japan account at BMG (notional case) USD Local USD Pooling: Surplus USD locally DS USA Account EUR JPY On DS SA account at BMG (ZBA case) Treasury at Dassault Systèmes We have experienced enormous growth at DS since the company was founded in 1981, to become the world’s leading 3D software design company. This culture of dynamism and innovation is inherent across the entire business, not least in treasury. We have a small but highly focused team that aims to embrace and pioneer the latest developments in cash, treasury and risk management, and leverage integrated, secure technology to enhance performance and efficiency. These objectives influence not only the way in which we have organised the department, but also in the projects on which we embark. For example, Investment Funding Daily Conversion at ECB Fixing rate BMG Account DS US Bank DS Japan Account BMG Account Local JPY Pooling : JPY funding from BMG DS Japan Bank Source: Dassault Systèmes has been a significant contributor to the successful integration of a number of major acquisitions realised over the last six years, allowing us to double our revenue and position the business for future growth. Phase 1: Rationalising cash management banks In such a fast-growing global organisation, managing cash efficiently is a major priority for DS. We therefore sought to improve the visibility of our cash, ensure rapid, secure access, and maximise the value of cash assets globally. The first phase of this project was to rationalise our bank relationships. One of the results of such rapid international growth was the proliferation of banks and accounts, with at least 83 bank relationships in place across our three core regions: Europe, North America and Asia. We made the decision to reduce this number to four banks. We issued a request for proposal (RFP) to a number of respected international banks with the solutions, credit quality and geographic reach that we were seeking. A key criterion for our decision was bank communication. When rationalising our banking partners, we wanted to implement a single, bankneutral connectivity channel that is integrated with our treasury management system (SWIFT integrated with Kyriba) as opposed to installing multiple proprietary systems. This would permit greater efficiency and more We have an active risk management programme with constant monitoring of our market and credit risks. Dassault Systèmes Founded in 1981, Dassault Systèmes (DS), is the world leader in 3D design software. 11,000 employees serve more than 170,000 customers across 140 countries and 12 industries worldwide, ranging from Transportation & Mobility, Aerospace & Defense to Natural Resources. Dassault Systèmes’ pioneering technology, the 3DExperience platform, enables customers to be faster and more innovative in their development, and to do business on the Cloud. The Cloud is more than an infrastructure or a delivery mechanism: it is a new way of working. It is where consumers voice their needs, ideas and feedback. It is where innovation takes place. With the 3DExperience platform, DS reveals and delivers that potential. As a result of these initiatives, treasury TMI | www.treasury-management.com 9 TMI221 ING RP Art3_Layout 1 09/12/2013 09:22 Page 10 with balances denominated in foreign currencies translated at the European Central Bank daily fixing rate. The balance on this header account is then itself swept to our central Euro account in Paris on a daily basis, where all our cash investments are done. Each foreign currency is then revalued the following day and any adjustments made. Figure 2 - Treasury technology infrastructure Phase 3: Process and technology harmonisation Source: Dassault Systèmes We had Kyriba already in place as our TMS, which we integrated with SWIFT to replace the various proprietary bank systems that we had consistent security in the short term, and greater independence in our choice of banks in the future; however, not all banks could satisfy this requirement. This project took around two years, but these four banks now cover 99% of our cash flows, with the remaining 1% handled through local banks for regulatory reasons. As a result of rationalising our banking relationships and reduced the number of accounts, we were in a better position to centralise our cash balances. Using the example of Europe, each entity has an account in each relevant country. These are zerobalanced into a non-resident euro account per country held by Dassault Systèmes S.A. These balances are in turn transferred to an account in France. We now have cash pools in USD, EUR and JPY, our three major currencies, with header accounts in each relevant region. used in the past. Phase 2: Global multicurrency cash pooling While this arrangement successfully addressed the challenge of centralising cash for each currency, within each bank, we wanted to extend our cash pooling concept further to centralise cash held with each of our banks and in all currencies that could then be managed by our headquarters in Paris. This would enable us to reduce FX risk, leverage our 10 cash assets more effectively and optimise cash investment. We reviewed a number of alternatives but ultimately decided to appoint Bank Mendes Gans (BMG), part of the ING Group, to implement a multicurrency, multi-bank cash pool. BMG was the only bank that was able to offer daily pooling across all currencies, which was more cost-effective and efficient than members of our treasury team transacting multiple FX swaps with the banks to reduce our FX exposure (figure 1). The header account, denominated in euro, is based in Amsterdam, Netherlands, The third project phase has been to standardise and optimise our treasury processes. We had Kyriba already in place as our TMS, which we integrated with SWIFT to replace the various proprietary bank systems that we had used in the past. In addition, a global ERP (Peoplesoft) rollout was taking place in parallel with our treasury project, which we also integrated into our treasury technology infrastructure to streamline transaction and information flows, therefore creating a complete ‘no touch’ straight-through process. There were two important elements to this phase of the project in addition to SWIFT: Firstly, while SWIFT enabled us to communicate with our banks through a single channel, we also wanted to use a single format. We implemented XML ISO 20022 to achieve this. As we were an early adopter of this format, which is also the format used for SEPA payment instruments, we were one of the first “Centralising cash has become a priority for organisations of all sizes, whether or not their objectives are to reduce the need for external funding or optimise the return on cash. For global corporations in particular, this can be very challenging given the range of currencies and banking relationships involved and diverse regulatory environments. Consequently, a growing number of companies are approaching Bank Mendes Gans (BMG) an independently operating subsidiary of ING, to implement a multi-currency multi-bank overlay global cash pooling solution. ING Commercial Banking together with Bank Mendes Gans (BMG) create robust liquidity management structures, both globally and locally, that are designed and implemented according to each customer’s needs. Having developed and delivered its unique global cash pooling solutions, netting and cash visibility solutions over many years, BMG has the experience, technology, and local, regional and global expertise to enable customers to reduce their FX risks and maximise visibility and control over their cash worldwide.” Saskia van Nes, Managing Director, Cash Management, Bank Mendes Gans TMI | www.treasury-management.com TMI221 ING RP Art3_Layout 1 09/12/2013 09:22 Page 11 insight corporations to comply with SEPA, significantly ahead of the February 2014 end date. Secondly, in the past, each electronic banking system had its own security protocols and devices which was inconvenient bearing in mind the large number of systems involved. While implementing SWIFT enabled us to rationalise the number of systems, we also wanted to add personal digital signatures to financial messages as we had done previously, but using a single device. We recognised that SWIFT’s 3SKey solution, which is supported by our banks, would facilitate this requirement (figure 2). A far-reaching impact The benefits of this new infrastructure have been substantial and far-reaching. Not only have we rationalised our technology infrastructure, standardised and secured processes, but we have also been in a position to implement a payments factory. DS’ Finance department has established shared service centres (SSCs) in United States (for North America) and 3 SSCs in Europe (France, Germany and UK) with payment factories located in each one. In each case, all payments for the relevant region are now channeled through the SSC and therefore through our new technology infrastructure. 3SKey has been an essential element in achieving this by increasing trust across the business and enabling a consistent approach to bestpractice transaction security. We have also enhanced our technology infrastructure with ancillary services such as Misys for confirmation matching and 360T for online transaction execution, further enriching the degree of automation and efficiency that we have achieved. Looking forward, it is our intention to extend our infrastructure to include eBAM (electronic bank account management) with 3SKey. Currently, banks are able to offer bank account management services through their proprietary systems, but not yet through SWIFT and/ or with 3SKey. Project outcomes Our project has been a remarkable success. Not only has treasury contributed significantly to growth in recent years but we have also helped position the company for future success. One of our core business assets for DS is cash, 97% of which is now centralised and invested securely. Our cash management infrastructure is robust, Saskia van Nes Managing Director, Cash Management, Bank Mendes Gans Saskia van Nes, managing director Central Western Europe, has been working for BMG for more than 15 years. Since 2005 she has been responsible for the French, Italian and Spanish markets. Before joining BMG, Saskia was employed in ING’s dealing room. She has a legal background and has lived and worked internationally; she is now based in France. John Colleemallay Senior Director, Group Treasury & Financing, Dassault Systèmes John Colleemallay joined DS six years ago. Previously he was Group Treasurer for the leading French publishing group, Editis, and before that he was Treasurer of the Remy Cointreau group, a leading company in the beverages sector. TMI | www.treasury-management.com transparent and meets our current and future need for optimal cash and liquidity management. Similarly, by implementing best-in-class treasury technology, supported with industry-preferred standards and security, we been able to enhance efficiency, control and costeffectiveness both within treasury and for centralised payments processing by our SSCs. This allows both greater process automation and control but also enables better visibility and control over working capital. Delivering success The success of a project of this scale, complexity and diversity of stakeholders is by no means guaranteed and requires considerable effort, commitment, project discipline and a shared global vision, not only within DS but also amongst our external partners, such as banks and vendors. We selected these partners carefully and worked closely together to share experiences and insights and develop common objectives. Inevitably, however, there were some challenges to overcome. In particular, it was important to work with business units to articulate and convince them of the benefits of rationalising bank relationships and centralising cash, both at a local and headquarters level. It was challenging, for example, to explain that cash would still ‘belong’ to them, but that the cost of borrowing would be reduced, and return on investment increased. We achieved this by visiting business units and spending time with local finance executives to understand their concerns and explain the concept in detail. By rolling out a single, global technology infrastructure, each business unit had access to their own intercompany account, ensuring that they maintained visibility and control over cash information, supported by a very high quality of service. This process of education, trust and transparency was essential to the success of the project as business units were naturally apprehensive about a potential loss of control. Today, however, we have common platforms, an efficient means of centralising cash and a successful outcome across the organisation as a whole. ■ Not only has treasury contributed significantly to growth in recent years but we have also helped position the company for future success. 11 TMI221 ING RP Art4_Layout 1 09/12/2013 09:23 Page 12 Innovation and Precision in Managing International Project Risks by Bert van der Donk, Treasury & Risk Manager, NEM Energy B.V. A s a global engineering firm operating in many of the world’s most dynamic but also some of the most volatile regions of the world, NEM Energy B.V., part of the Siemens Group, has to apply its combination of innovation and precision that characterises its product suite and approach to project delivery to its treasury management activities. Managing risk is a particular challenge, which has to be assessed and managed at an individual project level. In this article, Bert van der Donk, Treasury & Risk Manager discusses how NEM uses trade instruments in combination with other approaches to help manage collections risk that derives from both individual customer credit risk and wider political risks. Treasury background NEM is a global business, and although the number of customers with which we work is limited due the specialist nature of our activities, these are located in all parts of the world. Similarly, we work with suppliers and subcontractors globally. Like most engineering companies, the majority of our treasury activities relate NEM Energy B.V. Established in 1929, NEM Energy B.V. (‘NEM’) is a global leader in heat recovery steam generators (HRSGs), industrial and utility steam generators and related equipment. Since 2011, NEM has been a fully owned subsidiary of Siemens AG, operating on a stand-alone basis. The company is headquartered in Leiden, the Netherlands, and employs around 550 professionals across 25 agencies and 7 offices globally, with HRSGs installed in 6 continents. Like most engineering companies, the majority of our treasury activities relate to individual projects. 12 TMI | www.treasury-management.com TMI221 ING RP Art4_Layout 1 09/12/2013 09:23 Page 13 insight cash position can typically be financed through surpluses in other projects. In addition, as part of the Siemens group, liquidity is centralised on a group basis, which enables further access to internal financing if required. As a result, cash management is relatively straightforward. Banking partnerships to individual projects. We manage each one independently, which includes financing, risk management and cash management. Each project has its own cash flow profile, with different timings of cash inflows and outflows according to the project, but each project should be cash-neutral when considered on an aggregate basis. In general, projects do not need to be financed externally, as projects that have a negative We have three core banks with which we have a close relationship. A major aspect of this relationship is the bank’s ability to provide guarantee facilities, and support in a correct and precise drafting of the wording of the trade instruments applied next to efficient execution. For example, it is a common requirement that we provide performance and warranty bonds to customers. In addition, we work with an insurance partner to provide guarantees. With a project-based approach to treasury, however, managing credit risk is a major activity. Not only do we focus on managing our risk to each individual counterparty, but political risk is becoming a more significant issue than in the past. Emerging markets and the Middle East are particularly challenging where credit reference information may not be readily available and where the political situation may be opaque and fast-changing. The use of trade finance instruments is therefore an essential aspect of our risk management approach. We rely on our banks heavily for the issue of letters of credit (LCs), standby LCs and dealing with incoming guarantees and standby LCs. We work with banks that can confirm (standby) LCs in particular. With the growing importance of political risk, and the cost of insuring this risk increasing, we need our banking partners to share some of this risk. This enables us to adhere to our internally set credit risk management policy. We prefer standby LCs over bank guarantees for three key reasons: Firstly, if we need to issue a guarantee to a customer, the use of standby LCs is transparent as it is always conducted according to recognised universal practices. Secondly, a LC always has an end date. As such you are not dependent on any release-action of the beneficiary. In case the latter abstains from such action, the facilities remain blocked while the underlying contract is already duly performed. Therefore the fixed end date is particularly important to us. Thirdly, a standby LC offers better security on incoming payments, as if a customer pays late, we can make a demand for payment under the standby LC by simply sending the overdue invoice and statement to the bank. This assists with cash flow forecasting by improving the predictability of collections. With a project-based approach to treasury managing credit risk is a major activity. Partnership with ING “ING and NEM have enjoyed a relationship that extends for more than a decade with a particular emphasis on trade finance instruments encompassing LCs and Bank guarantees. In addition, the bank has a comprehensive banking relationship with the wider Siemens Group, particularly focused on servicing the Group’s European operations. As a complex, global engineering business solution provider, NEM requires trade finance solutions that are specifically designed to meet NEM’s credit , political risks and - to a lesser extent – cash management guidelines associated with each project including standby LCs. The latter instruments are commonly used in the United States and Latin America, and at a global level in the oil and gas sectors in particular. In Europe and Middle East, bank guarantees are typically used. However2, NEM has taken a less conventional approach and preferred to select trade instruments according to each individual scenario. It is an important part of our service offering at ING to be able to offer solutions that meet the individual cash and risk management needs of each of our customers, and the projects in which they are engaged, fulfilling the role of a true partner bank.” Jean Bonnet, Senior Consultant Trade Finance Services at ING TMI | www.treasury-management.com 13 TMI221 ING RP Art4_Layout 1 09/12/2013 09:23 Page 14 insight Proactive risk management As every project is unique, so too is each LC. We review the commercial and risk conditions of each project regularly and evaluate the instruments that are in place to protect our risk. This includes both guarantees that we issue, and those that we receive from our suppliers, including suspension of force majeure clauses and clear delivery statuses. If we determine that our political risk is high, we liaise with sales teams to manage processes such as warehousing carefully to minimise trapped cash that may be vulnerable. We also clearly specify payment conditions in the customer contract, e.g. what would happen to the contract in the event of the country becoming subject to an embargo. These same terms are included in the LC which should mirror the contract. To ensure that this is the case, we draft the LC at the same time as contract negotiations. Precision and flexibility We typically work on a relatively small number of high-value projects, so we do not need to deal with a large volume of transactions. As every project is unique, so too is each LC. This makes the use of templates and automated processes more difficult than in a more standardised environment, so each LC is managed individually. Not all customers are willing to issue a LC, in which case we transact business under open account, but this Bert van der Donk Treasury Manager NEM Energy B.V. Bert van der Donk is Treasury Manager of NEM Energy B.V. in the Netherlands. He joined NEM Energy in 1998 as Project Controller. After two years Bert moved into treasury responsible for setting up a Treasury Department which supports the international export contracts and global sourcing practices of the company. Bert is in charge of bank relation management, cash management and market risk hedging. His function also includes documentary trade finance, ECA-covered financing, credit and political risk insurance and guarantees. Before joining NEM Energy, Bert held the position of Finance Manager with the engineering company Articon BV and before that he worked for some 22 years with the Dutch Construction Company Ballast Nedam, where he held positions in the Netherlands and for10 years as expatriate in Bahrain, Saudi Arabia and Qatar. 14 applies in only a few cases where we already have a trusted, proven business relationship for which internal credit limits are put in place. Even in these cases, we still need to mitigate political risk through credit insurance or a combination of insurance and export credit agency financing. In some cases, such as in the case of a recent project in Iran, it was not possible either to insure our risk or obtain an LC. In this instance, we constructed the payment schedule carefully so that we always received more cash from the customer than the costs we had incurred, including future supplier commitments. Tailor-made solutions/ or using the right instrument in each situation Based on our experience of managing risk in emerging and/ or politically volatile markets, it is important to consider the full range of instruments that are available, and leverage the right instrument in each situation. This is not limited to bank or insurance solutions: as an exporter of capital goods, we have worked with the Dutch ECA very successfully. The basis of a trade instrument should always be the customer contract which sets the conditions for delivery, payment etc. The greatest difficulty in this respect is the final payment which may be assumed to be due after a certain period as opposed to being linked to a specific project deliverable. LCs have proved particularly valuable for our business, not least as that a customer’s ability to an LC demonstrates its financial viability and good banking relationship. In instances where using an LC or standby LC is not feasible, political or credit risk insurance should be considered. Risk is not limited to customer payment performance: supplier risk is also a major consideration, both individually and from a wider political risk perspective. To manage this, we visit our suppliers and subcontractors regularly and assess their financial and operating conditions. There are insurance products available, such as subcontractor’s default insurance, and construction wrap-up insurance in the US, but these allow the pass through of risk, as opposed to mitigating risk, and currently we do not use these products, although we may consider doing so in the future. Maintaining effective communication between NEM and our banks is essential in order to ensure that trade instruments meet our needs exactly and are drafted correctly. These banks also add value by sharing their expertise derived from working with a variety of companies with comparable risk management needs. Similarly, we work closely with internal sales, procurement and logistics teams to understand and mitigate our risk. This internal and external dialogue, based on common objectives is essential to manage risk and transform credit and political risk to performance risk. Project delivery is more closely in our control and an area in which NEM excels, so we are leveraging our strengths, whilst minimising potential areas of weakness in which we have less control. ■ Jean Bonnet Senior Consultant Trade Finance Services at ING Jean Bonnet, Senior Consultant Trade Finance Services at ING, started his banking career as management trainee after which he subsequently fullfilled roles as Treasury & cash management consultant, relationhip manager Trade & Commodity Finance, head of commercial risk trading, global head loan syndication (emerging markets & TCF focus) as part of Debt Capital Markets, regional head MidCorporates, relationship manager Corporate Clients and since 2010 in it’s present role focusing on large/ global clients with a Dutch footprint. Jean graduated from University Nijmegen law school with further postgraduate and management education followed at a.o. Free University of Amsterdam (incl. commercial finance) and Insead. TMI | www.treasury-management.com TMI221 ING RP Art5_Layout 1 09/12/2013 09:28 Page 15 insight Addressing Cash Management Complexity in Turkey through a One Bank Strategy by Jennifer Tan Sue Een, Treasury Manager, Europe & Africa and Mario Del Natale, Director Treasury Operations, Systems & Applications, Johnson Controls A t Johnson Controls, Inc. we have been through a period of geographic expansion and financial process optimisation, including establishing regional shared service centres (SSCs). As part of this strategy, we made the decision to appoint one bank per country for cash management, whilst aiming to reduce our total number of banking partners overall. We use a variety of criteria when choosing a bank according to our requirements in each country, but they should be part of our lending syndicate (i.e., a relationship bank) and we will review each bank relationship in depth every five years. Our EMEA treasury department in Belgium is responsible for 47 countries across Europe, Middle East and Africa (EMEA). In some cases, we need “The strength of the relationship between JCI and ING is largely based on the close alignment between the two parties at both a local and regional (treasury) and HQ level, and effective communication. The project has benefited significantly from a long-standing relationship in a number of countries and ING’s experience and expertise derived from working with large multinationals with comparable requirements to JCI, such as SWIFT connectivity.” Rick van Doggenaar, Payments & Cash Management US, Ayşe Özgür, Corporate Clients ING Turkey, ING Commercial Banking TMI | www.treasury-management.com to work with a local bank for domestic cash management purposes but ideally we try to work with our relationship banks wherever possible. Optimising bank communications While a one bank per country strategy met our relationship banking and cash management requirements, there was a risk of fragmentation and replication of banking technology. Consequently, we made the decision in 2008 to migrate to SWIFT, leveraging XML to standardise communication formats at a global level. We have now implemented SWIFT in most countries of operation, enabling us to achieve our banking strategy whilst maintaining a high degree of efficiency, control and standardisation in our bank connectivity. Relationship banking with ING We work with ING in multiple countries in EMEA. In each case, ING provides domestic as well as international cash and treasury management services, which include FX, commodities (e.g., base metals), derivatives, cash management and notional pooling through Bank Mendes Gans (BMG), a subsidiary of ING. ING is a 15 TMI221 ING RP Art5_Layout 1 09/12/2013 09:28 Page 16 insight strong SWIFT partner, so we have implemented SWIFT and XML formats in each country, most recently Turkey. Supporting business growth in Turkey Turkey has been an important growth region for JCI in recent years. Before 2011, we had an existing business through two fully-owned subsidiaries and a joint venture. Since then, these have continued to grow, fuelled by a series of mergers & acquisitions. In addition, we have set up a new plant in Turkey that we expect to fuel further growth. Cash management in Turkey can be complex and in the past, we had multiple local banking partnerships. In 2011, however, we decided to implement our one bank strategy in Turkey, so we launched a request for proposal (RFP). Based on a rigorous analysis of a shortlist of banks, we made the decision to appoint ING as our partner bank in Turkey. There were a variety of factors that contributed to this decision. We were impressed by ING’s depth of presence and range of services that the bank provides locally at a competitive price, including local financing. In addition, we were confident in the bank’s professionalism and experience based on our relationship in other countries, including the bank’s support and expertise in SWIFT connectivity. A local and regional banking partnership Although we launched our RFP late in 2011, we were not able to migrate our banking relationships immediately due to changes in the local funding situation which we needed to address first. However, we are now actively engaged in the implementation with ING. We maintain our relationship with ING at both a treasury and local level: activities such as account opening and setting up credit facilities take place locally while treasury ensures that the JCI’s overall financial and efficiency objectives continue to be achieved. This combined regional and local approach enables us to maintain operational efficiency, control and policy compliance whilst ensuring that we have the local presence and expertise to optimise our local cash and treasury requirements. Turkey is one of the last countries to be connected to SWIFT. ING has an existing SWIFT hub in Belgium to which JCI is connected, and Turkey will be part of this infrastructure in the same way as every other country in which JCI works with ING. This includes a variety of different payment types. Jennifer Tan Sue Een Treasury Manager, EMEA, Johnson Controls Jennifer Tan Sue Een, ACMA, CGMA, works as Treasury Manager in Regional Corporate Treasury EMEA department of Johnson Controls based in Brussels, Belgium. To-date, she has been working in Regional Corporate Treasury EMEA for over five years. She started with responsibility for the Middle Office for all derivatives and commodity trading, later taking over the main responsibility for Bank Relationship Management and Cash Pool Restructuring for 41 countries in Europe and Africa. Until recently, she had moved on to her new role as the main Treasury Business Unit Support for Power Solution Division EMEA. Jennifer started in Johnson Controls as an International Internal Auditor in the Regional Corporate Internal Audit EMEA department based in Brussels, Belgium prior to joining Regional Corporate Treasury EMEA department. Looking ahead Over the next year, we will complete the migration of cash and treasury management in Turkey to ING. This requires a flexible approach as our business activities in the country continue to expand. More generally, we are also reviewing bank relationships in a limited number of countries where it has proved difficult to work with a relationship bank in the past. We are working with all of our relationship banks to clarify our exposure to country risk in each country. This is becoming more important as the economic situation both regionally and globally continues to be Johnson Controls, Inc. Johnson Controls, Inc. (JCI) is a global diversified technology and industrial leader serving customers in more than 1,300 locations worldwide (150 countries).The company has 170,000 employees who create quality products, services and solutions to optimise energy and operational efficiencies of buildings, lead-acid automotive batteries, Absorbent Glass Matt (AGM) Start Stop Batteries and advanced batteries for hybrid and electric vehicles and interior systems for automobiles. Founded in 1885 with the invention of the first electric room thermostat, JCI has a demonstrable commitment to sustainability. In 2012, Corporate Responsibility Magazine recognised JCI as the #5 company in its annual 100 Best Corporate Citizens’ list. JCI is headquartered in Milwaukee, United States and is traded on the New York Stock Exchange (NYSE: JCI). The company is positioned at no. 67 on the US Fortune 500 and no. 267 on the Global Fortune 500. 16 fragile and our business increases in emerging markets where risk exposures may be more difficult to quantify. In addition, we continue to standardise fee structures across our banking partners to make it easier to compare and reconcile bank charges. ■ Mario Del Natale Director Treasury, Johnson Controls Mario works for Johnson Controls, a global diversified technology and industrial leader serving customers in more than 150 countries headquartered in Milwaukee, US. He is based in Brussels where is responsible for treasury operations (cash management EMEA, global back- and middleoffice for all derivatives trading) as well as for providing longterm strategic recommendations on global treasury IT applications and solutions to VP & Treasurer and treasury’s leadership team. Rick van Doggenaar Payments & Cash Management US, ING Commercial Banking In 2008 Rick started his career at ING Corporate Clients The Netherlands as account manager and developed good skills in relationship management. In February 2012 he decided to join the Payment and Cash Management US Team. In this role he is the single point of contact for US corporates and responsible for managing all their payments and cash management related questions and queries throughout the entire ING network. Rick has a vast knowledge of the European corporate banking environments. Over the years he has created an extensive network within ING to ensure excellent service and perfect execution for his clients. TMI | www.treasury-management.com Download the ING CB app for iPad in the App Store and watch this ad in 3D See how we provided Randstad with payments & cash management services in Italy so they can concentrate on their core business www.ingcb.com 236.00.277 ING Randstad_210x297.indd 1 7/23/13Week:30 9:25 AM