In the Netherlands of the eighteenth century, a diverse range of regional funds was set up to reduce the risk of setbacks in certain professions or in vulnerable regions. Two national life insurance companies, De Nederlanden van 1845 and Nationale Levensverzekering-Bank, over the course of the nineteenth and twentieth centuries, took over many of these funds. In 1963, these two large insurance companies merged, creating Nationale-Nederlanden. Due to the strong financial position acquired by this new company, it continued to grow abroad, particularly in the United States. As of last year, the products supplied by the Dutch insurance company RVS, which was acquired in 1984, also form part of the Nationale-Nederlanden brand. Nationale-Nederlanden now has over five million private and commercial customers who are using a broad package of financial products and services, such as pension plans, life insurance, non-life insurance, and income insurance. Nationale-Nederlanden has recently also started offering bank savings products and mortgages.

Uncoupled

The idea of starting up a bank arose in response to market trends observed in recent years: the life insurance market continued to shrink, while the bank savings market, on the contrary, was expanding. Prior to this, Dutch insurance companies had been able to offer tax-related and wealth creation products for years. In 2008, a new legislative proposal eliminated the monopoly held by insurance companies on such products. This opened up a very lucrative market for banks. At the same time, Nationale-Nederlanden, which formed part of the huge ING enterprise, did not have the independence required to provide such bank savings products. Then the European Commission ruled that ING, with its government support, was required to uncouple its insurance business from its banking operations. This meant that offering bank savings products became an attractive possibility. At the same time, it made it possible to offset the increasingly contracting life insurance portfolio with the new bank savings portfolio.

“While we had a financial background as an insurance company, we did not have a banking background,” says Peter Verberne, CFRO of the Nationale-Nederlanden Bank. “Banking is completely different from insuring. The complexity associated with banking requires proper management. This is why we asked Zanders to advise and guide us in this area. For example, when the time came for us to apply for permits from De Nederlandsche Bank (DNB), after we had developed our bank savings products. “The earning model for a bank requires you to have sufficient size in order to be viable and operate with a profit.”

The consultants [from Zanders] developed the bank’s risk management system for us. This made the complex risk management subject matter very transparent and tangible without detracting from its complexity.

Peter Verberne, CFRO of the Nationale-Nederlanden Bank

Volume Ahead of Profit

The collaboration with Zanders started approximately two years ago. In June 2011, DNB granted Nationale-Nederlanden permission to start up a bank. Finally, after making provisions for the legislated capital requirements, the company opened up its banking savings products counter in the third quarter of 2011. The new bank commenced by offering golden handshake-related products and products for the annuity market.

At that point, Nationale-Nederlanden, as a bank, was also required to start offering credit products on the Dutch market. This resulted in the creation of the Nationale-Nederlanden Bank’s mortgage arm in the first half of 2012.

Verberne says: “This is an entirely different discipline from collecting savings. We therefore prepared a number of acceptance criteria and adjusted the risk management system to incorporate the risks that apply to the granting of loans. The program that emerged from this has been used for providing mortgages since the third quarter of 2012.” The management of the core mortgage lending processes was contracted out to a third party.

“However, as an entity, you must look after the risk management process in-house,” Verberne continues. “The financial risk management, the credit risk management, the operational risk management, compliance – we outsource as much as possible, but the core functions are carried out within the bank, including risk management in its broadest sense.”

When we took our first steps on the banking market, volume was a key factor. “The earning model for a bank requires you to have sufficient size in order to be viable and operate with a profit,” Verberne explains. “This is why we wanted to offer regular savings in addition to bank savings, and this is why we will be introducing two additional regular savings products in the near future. Zanders also designed the risk management systems here. The volumes that the Nationale-Nederlanden Bank is aiming to achieve with these savings products are significantly higher than with bank savings. We are aiming to become a serious player on the savings market within a short period of time. The basic principle remains that we will continue to offer simple banking products. In other words, straightforward banking with what-you-see-is-what-you-get products.”

Transparent Products

What is the situation with respect to the new competitive position in relation to ING? Verberne explains: “Our mortgages and savings products mean that we already compete with ING. We pursue an independent pricing policy in this respect. Furthermore, Nationale-Nederlanden is one of the best-known and strongest financial brands that is simply offering a far more extensive range of services.” “By leaving out the bells and whistles, we can offer a more competitive rate.”

“In addition, there is currently also a trend for increasingly simple products,” says Yvonne Sijm, a Zanders consultant. “Especially private customers opting for wealth creation products, for example for their pension, can now obtain such products not only from their insurance company, but also from their bank. At a bank, this is far more transparent because, in contrast to an insurance company, you do not pay a risk premium. Private customers opt for these transparent products, and this is why you are now seeing a shift to more straightforward banking products.”

The insurers of pension and life insurance products are most affected by this trend. The non-life and term life insurance sectors still have a clear raison d’être. A financial institution is required to provide transparency and to be straightforward, but at the same time, the customer wants security. What the customer is prepared to pay for the risks the company takes therefore also comes into play. “This is a difficult issue,” says Verberne. “You have to offer customers an interest-rate refixing period, which affects your own interest rate risk. This also applies to mortgages. While you can add a lot of bells and whistles to these products, they all carry risk, and these risks come at a price. On the other hand, by leaving out these bells and whistles, we can offer a more competitive rate.”

Risk Horizon

With the help of the Nationale-Nederlanden’s strong name, the bank must take its planned powerful steps into the banking market. Life insurance policies were traditionally primarily sold via intermediaries. This also applies to bank savings and mortgages, which, in part due to the fiscal aspects of these products, are true financial advice products. In terms of the regular savings products, Nationale-Nederlanden will primarily focus on direct channels.

“The targeted bank savings customers include all Dutch citizens involved in wealth creation,” says Verberne. “For example, these customers may have a maturing annuity policy or want to terminate this policy, but it can also include customers who received a golden handshake when they were dismissed and who want to put it aside or convert it into a payment stream. In terms of the mortgages, this includes all Dutch citizens who are referred to us via their mortgage broker. And for the regular savings products, it can be anyone who wants to save.”

According to Verberne, Zanders has supplied the tools needed to ensure the new entity will work in practice. “This sometimes entailed very practical matters that are the same in the insurance world, but that have been given a different name in the banking world. In addition, the risk horizon considered by an insurer is longer than that of a banker. This can cause misunderstandings, but I think that we have taken a solid step in this area.” The basis for this will be established later this year through a merger with a key component of the Westland-Utrecht Bank. As such, the banking market will have one more player, with a well-known name and a competitive capacity, no matter what happens.

Caring for the environment has, for many years, no longer conjured up a vision of living an alternative lifestyle; it’s become an accepted fact of international business life. Our current sustainable mindset owes a great deal to the awareness campaigns carried out by environmental organizations such as Greenpeace. This movement has, for decades, crusaded against commercial and governmental activities that are harmful to the environment and brought ecological anomalies to the attention of the press and the public.

It all started in 1971, on an old trawler. It was manned by a handful of Americans and Canadians who set course for a location off the coast of Alaska to protest US plans to carry out above-ground atomic tests. They failed to reach their destination but succeeded in their campaign, generating so much publicity that the US called off the tests. The trawler was renamed ‘Greenpeace,’ and from then on its popularity grew, thanks largely to its protests against hunting young seals for fur. Demonstrations against whaling, nuclear energy, and chemical discharges quickly strengthened Greenpeace’s influence. In the years that followed, dependencies sprouted up in more and more countries. Then Greenpeace International was founded, first in London, and for pragmatic reasons, its headquarters were moved to Amsterdam, as it wanted to operate from a liberal, progressively minded country.

Too slow

Great strides towards adopting more sustainable solutions have been taken in recent years in various sectors, such as the electronics industry and energy. “But it’s still all moving far too slowly for our liking,” says Radboud van Delft, organization director of Greenpeace International, the umbrella organization of nationally active Greenpeace branches. “We worked out energy scenarios for migrating to fully sustainable energy years ago, scientifically verified by country or continent. What’s more, we’ve already shown that it’s all technically feasible—something which was often disputed in the past. But governmental policies also have to be accommodating. Unfortunately, little is accomplished through climate summits, so we find ourselves having to focus on individual energy companies and governments. Even in Europe, it’s difficult to quickly adopt significant policy changes. Poland, for example, still depends heavily on coal, while France refuses to play ball when it comes to nuclear energy. European policy is very slow and cumbersome, and with certain species facing extinction and people suffering from the consequences of climate change, nature and people need change to happen now.”

Greenpeace can be characterized as an ambitious, action-oriented organization. Its approach is valued throughout the world, as evidenced by its millions of donors and many thousands of volunteers can all bear witness to.

We were looking for a bank that was safe and one we could be sure was investing
our donors’ money responsibly, financing the solutions too.

Radboud van Delft, organization director of Greenpeace International.

Cleaning up

As an organization, Greenpeace prides itself on its use of independent, non-violent, creative confrontation. “We seek neither political nor commercial links, and we have no permanent enemies or allies,” says Van Delft. “We don’t accept money from companies or governments; financial dependence or obligation would make it difficult to be critical, so we avoid such situations. We seek common cause through our work with governments and, of course, our work with companies, like Coca-Cola and McDonald’s, to promote sustainable business. However, while we applaud them for doing the right thing, we never endorse them. We are more than willing to work with any party that shares our objective: protecting the environment. Take Dutch energy supplier Nuon, for example. We are exploring ways with them of producing cleaner energy that will represent a significant step forward in sustainability while maintaining commercial viability.”

Taken in a global context, the situation becomes more complex. As climate summits have shown, it’s the big countries, the ones that use the most energy, that erect the biggest obstacles to far-reaching international agreements. “China is a very interesting example,” says Van Delft. “There’s just so much going on there. Here in the Netherlands, we’ve campaigned strongly against plans to construct five new coal-fired power stations, spread over a period of a few years. In China, they build five such power stations every month. That said, the Chinese government knows it has a lot to do when it comes to the environment; the national government actually uses our reports to put pressure on provincial governments to get things done. Demand for energy is growing very rapidly there, but no other country invests as much in clean energy as China.”

So, given that Greenpeace cannot take action in China, does that mean an increased emphasis on lobbying? “We are a campaign-oriented organization, and there are different ways of campaigning. Over the years, we’ve broadened our campaigning base. We’ve embraced scientific research, for example, and in recent years we’ve become very active on social media, with up to 24 million people who like, share, tweet, sign up, and campaign with us. These efforts have led to wins such as getting Apple to adopt green energy and major fashion brands to drop toxic chemicals from their production processes.”

Green and healthy

During the 1970s and 1980s, Greenpeace gained a lot of brand awareness and donors. Those followers are still faithful, but people in today’s younger generation in the West are more difficult to connect with, which is a problem many other organizations also face. Despite the aging of its donor base, Greenpeace has many supporters worldwide, and in Asia and Latin America, it is growing particularly strongly.

“Our donors make it possible for us to campaign all over the world,” continues Van Delft. Local branches in 40 countries contribute financially to Greenpeace International, which is responsible for worldwide strategy and coordination. Over the past few decades, its worldwide income has grown to approximately EUR 240 million, some EUR 60 million of which is channeled to Greenpeace International. “The money is used to fund global campaigns, our ships, worldwide IT systems, and to pay international employees. We set aside part of our cash reserves for future campaigns and investments. But we want to prevent these reserves from being invested in activities that we typically oppose, such as those of oil and nuclear energy companies. Most mainstream banks do invest in activities like these.”

Greenpeace has, for a while now, used green banks such as Triodos and ASN, but on a very limited scale. Most of their assets have been held by what were considered reliable mainstream banks. The Greenpeace International board was recently looking for a suitable bank and was spurred by a growing need for security. However, it was unfamiliar with the relatively small, Dutch green banks. Van Delft says: “First and foremost, our money had to be secure, and with the smaller banks, it wasn’t clear how secure they were. In a nutshell, we were looking for a bank that was safe and one we could be sure was investing our donors’ money responsibly, financing the solutions too.”

If a bank wants to stay financially sound it must invest in government bonds, but not one government can claim to have a perfect, sustainable energy policy.

Radboud van Delft, organization director of Greenpeace International.

Greenpeace had a few financial institutions in mind, but unfortunately, the smaller banks hadn’t been assessed by the big rating agencies. So, the board decided to have the candidates that showed potential assessed externally, and Van Delft went in search of an independent advisor to help them make a well-founded choice. “Which brought us to Zanders and Sustainalytics.”

Sustainalytics: Sustainalytics is a global provider of environmental, social, governance (ESG) research and analysis. Provided by Sustainalytics, ESG research and analysis enable organizations to assess the potential influence ESG issues will have on the risk and return of their investment portfolios and funds. You can find more information about Sustainalytics on: sustainalytics.com.

Looking further

Coincidentally, these two were already on the same wavelength, and so began a collaboration in which banks could be assessed on both creditworthiness and sustainability. Zanders had experience in financial ratings, for which it had already developed models, such as Eagle, while Sustainalytics had experience in assessing companies on their sustainability.

Zanders and Sustainalytics started by whittling down a long list compiled by Greenpeace into a shortlist. Based on their initial ratings, it was possible to eliminate all candidates outside Western Europe and the US. When further scrutinized for sustainability, even many Western banks failed to meet Greenpeace’s exacting criteria.

“We can easily verify a bank’s creditworthiness,” says Zanders consultant Hans Visser, explaining that over 30,000 banks worldwide can be allocated a credit rating through the Zanders bank risk-rating model.

But Greenpeace wanted to look further than that; they wanted to see where a bank invested its money. We were aware of the need for sustainable investment products, but in this respect, we had to check out the bank as a whole."

The question that had to be linked to the creditworthiness factor was what criteria had to be applied to a sustainability rating. Van Delft adds: "It’s not enough for a bank not to invest in activities that could be detrimental to the environment," he explains. "Investments in the defense industry, for example, or those that rely on child labor are also unacceptable. Sustainability criteria are, of course, very specific, the others are more generic. You can quickly ascertain that a bank doesn’t directly finance dubious activities, but it’s much more difficult to establish exactly what happens to the investments it actually makes."

Tal Ullmann and Joris Laseur were responsible for the assessments of banks on their sustainability performance on behalf of Sustainalytics. "To begin with, we assessed a dozen or so banks on Greenpeace’s sustainability criteria," says Ullmann. "You have to realize that no bank can comply fully, so we weighted each criterion with a number of points that were awarded to banks, and in this way, we came to a ranking." The resulting shortlist was then further analyzed and assessed. "We then checked out the banks that scored the most points on Sustainalytics’ more generic sustainability indicators," adds Laseur. "These included indicators in the area of corporate governance, and those pertaining to policies and environmental and societal programs."

Usually, banks that have high ratings are the ones that have clients with high ratings. And the fact that scores for sustainability criteria will never be 10 out of 10 is quite logical, explains Van Delft: "If a bank wants to stay financially sound, it must invest in government bonds, but here’s the thing: there’s not one government that can claim to have a perfect, sustainable energy policy. And that’s just one of the aspects that have to be taken into account."

Other Organizations

The collaboration between the three parties was excellent, assures Van Delft. "I was particularly pleased with the way both Zanders and Sustainalytics were willing to invest in the development of these tools and adapt them to our specific requirements. Their joint expertise was efficiently exploited and it created a lot of synergies. I believe that this cooperative effort between business and society demonstrates how many of the complex problems we face in the world today can be jointly tackled. To the best of my knowledge, rating the combination of a bank’s financial soundness and sustainability in this way is quite unique. Wouldn’t it be great if it could be done by a lot of other organizations too? Not just NGOs but organizations that are active in both the public and private sectors — in fact, everyone who wants to support a newer, greener economy."

The assessment criteria could be adapted to the values and objectives of the relevant organization. "But at the same time, we have to keep following the criteria used for Greenpeace," insists Visser, "it’s a snapshot and, of course, everything changes." Even the collaboration itself is sustainable: it will be followed up by a Monitoring Service, with which bank ratings can be continuously monitored.

In Van Delft’s opinion, their choice of bank indirectly sends a signal to all banks. "Our motivation to use this combination was mainly for internal use, but it certainly contains useful elements that could influence clients’ behavior. The way we have now invested our money complies with our procurement policy and, for example, the construction of our new ship, Rainbow Warrior III. This too must meet the highest possible sustainability requirements and be safe for all those who sail with her."

If you want to know more about rating the combination of sustainability and financial soundness, contact us.

When one of the world’s biggest tobacco companies decided to bring all its entities onto the same enterprise resource planning system, there were some challenges along the way. Zanders brought its expertise to bear, to help design, test and go live with the chosen system - and ultimately make the SAP implementation a success.

British American Tobacco (BAT) was founded in 1902 as a joint venture between the UK’s Imperial Tobacco and the American Tobacco Company. In its 110 years of business, BAT has grown considerably through acquisition to become the world’s second largest tobacco firm and a top 10 FTSE 100 company with 183 companies around the world. One of the biggest acquisitions of recent years was the purchase of Rothmans International in 1998. Its biggest brands include Lucky Strike, Pall Mall, Dunhill and Kent cigarettes.

Gavin O’Dowd was the Project Lead for the Treasury part of the SAP implementation project based at BAT’s London headquarters. He says: “Until now, BAT had never integrated their business cohesively into a single model within our financial operating system. We therefore decided to launch two programs to achieve this.” The first of these programs was to roll out a single ‘Target Operating Model’ (called project ‘TOM’), while at the same time supporting this with a single SAP system across the company (called project ‘One SAP’). BAT treasury has been using SAP since 1999, but different business units were using different versions of the application. These two projects were combined and became a single global program called TaO (Tom And One SAP). Tao is the Chinese word for ‘path’ or ‘way’ - which is apt since China is BAT’s biggest single market, and has 40 percent of the world’s smokers.

As a system becomes more bespoke, it also becomes more complicated to update and maintain

Gavin O’Dowd - (BAT - Project Lead for the Treasury implementation)

Designing project TaO

The aim of project TaO was to create a template for all of BAT’s operations. It was a complex, multi-pronged project involving several departments across the group, not just treasury. The other departments involved in the project included financing, operations, and marketing. BAT’s Dutch entity had been a Zanders client for several years prior to project TaO, so the consultancy was asked to join and began working on the design phase of TaO in April 2011. While the TaO project involved a company-wide SAP implementation, the Zanders team worked exclusively on the SAP Treasury & Risk Management, Bank Communication Management (BCM), and In-house Cash elements of the project. Judith Wissink is a Zanders consultant who managed the implementation of the SAP Treasury & Risk Management module and worked closely with the BAT treasury team throughout the project. She says that the team had to work quickly to understand what was needed: “One of the biggest challenges was that BAT had been thinking about the new system and how they wanted to work for 18 months before the actual project started. So we had to get up to speed quickly. We needed to fully understand BAT’s requirements before we could begin designing the system.”

Zanders worked with BAT on designing the future software architecture for all of BAT’s entities. First of all they created the templates for this. BAT’s O’Dowd says: “The first challenge was to define the overall goal of the project. What did treasury want to achieve? We had to consider the structure of our treasury, as BAT has some huge foreign currency exposures because we function in pound-sterling, although we make relatively little profit in our operations in the UK.” He adds: “The next thing was to be clear on the benefits for treasury and to always make decisions with that in mind. All the benefits were quantified and were considered in terms of risk reduction.”

Creating a bespoke but balanced system

While SAP was BAT’s chosen system, it didn’t provide all the functionality that the group required. Some custom development and design were therefore needed. O’Dowd explains: “The second challenge was that SAP did not give us all the capabilities that we needed and so we had to create some bespoke functionality. We needed to strike the right balance though - as a system becomes more bespoke, it also becomes more complicated to update and maintain.”

There were several enhancements to be made during the implementation project. One of these was the part of the system called Deal Optimiser. Zanders was responsible for the system design of the bespoke elements of the system and it collaborated with developers on the realization of that part of the project. BAT had a very specific vision of what it wanted to achieve through the TaO project and this made certain aspects of realizing the project quite challenging. The build phase began in September 2011 and involved customizing the standard SAP system and building the bespoke part. This also posed a challenge because treasury was part of the bigger company-wide project. At various stages during the build phase, this required close alignment between the treasury workstream and the other ‘workstreams’ within the TaO project, as a lot of processes were interdependent. As well as the Treasury Module, SAP In-house Cash and BCM also needed to be customized. The customization of In-house Cash and BCM was managed by Zanders’ Mark van Ommen. Both Deal Optimiser and In-house Cash had a large geographical spread and the latter has now been completely rolled out across the company. Deal Optimiser is also live across 90 percent of its target end users.

The ‘fit-gap’ analysis

The treasury system template was designed to fit the needs of global treasury in which most of BAT’s treasury activities take place. To make sure the template also fitted the end market’s requirements, BAT Malaysia was chosen as a pilot company. Once the template design was complete, the template needed to be evaluated against the exact needs of the Malaysian company, one of BAT’s top 10 end markets. This phase of the project was referred to as the ‘fit-gap’ phase and its aim was to see if the template would meet the company’s specific needs and if any changes to the template would be necessary. Wissink explains: “After the fit-gap analysis we started to actually build the system for the entities in scope. This was our first proof of concept for the designed template.”

Ironing out the bugs

Both the design and the testing phase were key stages of the project. Once the system had been designed, customized and built, three rigorous testing cycles were carried out. These consisted of an initial technical test cycle carried out by Zanders consultants (unit testing); an integration test cycle conducted by the consultants and BAT’s staff; and the user acceptance testing stage with BAT’s key users testing by themselves.

O’Dowd says: “During the testing phases we got rid of a lot of bugs - to the point where there were none.” BAT’s key users were the group’s central treasury and central accounting departments based in London, the Romanian shared service center, the treasury and shared service center in Malaysia, as well as other end markets. After these testing cycles, the design and build of the system was signed off.

At each stage of the project, there was a strong focus on documentation and support. Wissink explains: “During each phase, we documented all the settings that we made, and explained the logic behind the settings for the future support team to be able to maintain the system. We also produced training material and user manuals.”

Team work

The go-live date was the third of September 2012. O’Dowd notes that there were no major issues with the SAP systems after go-live (during the after care phase): “We had done so much testing that this went smoothly.” However, there were other challenges during the pre-go-live phase for treasury in Malaysia. O’Dowd explains: “It was a challenge to get bank connectivity ironed out in Malaysia. In the end, the banks resolved any problems in a satisfactory way.”

A team of 14 Zanders consultants worked on the project, while BAT had a team of 25 in place for the testing phases of the projects. Deepak Aggarwal was the overall project manager for Zanders and both Judith Wissink (who managed the SAP Treasury & Risk Management implementation) and Mark van Ommen (the In-house Cash and Bank Communication Management modules) and their teams reported to him. O’Dowd says: “Zanders were a young and dynamic team. Deepak Aggarwal had some fantastic experience, which really boosted the design process. Judith van Paassen, partner at Zanders, was also involved and was able to influence at a high level at BAT, which helped us enormously. All the consultants showed great expertise in the areas of In-house Cash, bank connectivity, and the SAP Treasury module.”

Ambitious plans

BAT is ambitious for the future implementation of the TaO program. Over the next three years, it intends to roll out the SAP system to more than 120 countries. The In-house Cash module has already been rolled out to 62 countries and is now processing 60,000 transactions per month. Deal Optimiser is live in 25 countries.

O’Dowd says: “Overall, the program has been a roaring success. The smoothness of the go-live was second to none. The attention to detail during the design, testing, and pilot cycles really paid off, so I would really emphasize this to people starting out on a similar project.”

The regulatory changes in the healthcare sector have put smaller establishments with specific care functions in a tight corner. Audiological centers, such as those run by Pento, are among them. In audiological care, the outlay precedes the benefits, yet the bank is setting more stringent financing conditions. How is Pento dealing with this?

The causes of hearing loss are many and varied, from congenital to ‘acquired’ or even psychogenic. Fortunately, thanks to audiological care, there are also many solutions that enable people with hearing impediments to participate in society. The first audiological initiatives in this regard originated in the Netherlands, in the 1960s, when the measurement of hearing using scientific - and therefore reliable - methods became a specialist field in itself. Developments and support in the sphere of language and speech soon followed, because these are closely associated with hearing.

Tensions

In 2007, five audiological centers (AC) decided to merge to form Pento. ‘Penta’ refers to the Greek word for five. There are now six centers and a hearing support service, all located in the central, eastern, and northern areas of the country. Following a referral by a doctor, an AC advises the audiological patient on the appropriate hearing aids and other solutions.

The AC itself does not provide any medical treatment and only employs paramedical staff. Working according to a multidisciplinary approach—which often also involves speech therapy, psychology, and social work—its staff ascertains and analyzes the possible cause of the hearing problem and what can be done about it or offers assistance with the initial use of a hearing aid. The techniques are improving, and hearing impairment is becoming less of a taboo subject.

However, audiological centers too are feeling the effects of the major changes affecting healthcare sector budgets. A free-market system has been introduced along with a new funding system, bringing with it a whole host of changes to the billing process. There are around 30 audiological centers in the Netherlands, a market worth approximately 40 million euros. This means that the audiological sector accounts for less than one percent of the entire healthcare sector. “This is reflected in the tensions that arise whenever you are faced with new government regulations or new policies introduced by health insurers,” explains Jeroen Taalman, director at Pento. “Less account is taken of you. They don’t want to make exceptions to their policies for a small player.” Pento represents a market share of roughly 20% of the audiological sector, making it a big fish in what is a small pond relative to the healthcare sector as a whole. “Consequently, the outside world looks at you differently; people sometimes expect more professionalism in our internal operations than we were able to offer.” The same can be said of Pento’s position and its role as a model within FENAC, the Federation of Dutch Audiological Centers, which represents the centers’ interests. “

In the early years, we took a ‘sticking plaster’ approach to most of our financial decisions,” says Taalman. “So we were often closing the stable door after the horse had bolted, and that was unsustainable. Now, all the necessary arrangements are in place and the structure is clear. We have appointed a financial manager, and an audit committee has been formed, made up of members of the supervisory board. All of which is positive, but our approach remains pragmatic; there are few organizational layers, and we deal with situations as and when they arise. And we are aware that there is a lot more scope for development.”

No capital

What we needed was scenario thinking: what scenarios can we develop for the future and how can we create a future-proof financing structure?

Jeroen Taalman, Director at Pento

The new laws and regulations in the healthcare sector created a quagmire of uncertainties for Pento, chiefly due to the changes in the funding system. “In the space of six months, it all mounted up to such an extent that we felt the ground was slipping away beneath us,” says Taalman. “There were still no contracts in place with health insurers, the fees for each consultation weren’t transparent, and yet we had to calculate the number of consultations we had to reach from a cost perspective. In other words: both the price and the volume were under scrutiny.”

As regards the volume it can achieve, Pento is largely reliant on the referrers, although the law stipulates that various treatments may only be provided by an AC. At the same time, the purchasing ceiling for health insurers means that Pento is only allowed to carry out a maximum number of treatments for a specific fee. Taalman says: “Health insurers are now recognizing that the only way to be able to estimate volume is to form a partnership. The healthcare sector is riddled with inter-dependencies and mutual responsibilities. If we were to suddenly stop or refuse AC care, we would create problems for the health insurer.”

Meanwhile, Pento was contending with another serious financing problem because, until the end of 2011, it was not allowed to build up any equity capital. Under the original funding system, ACs did not generate any profits or losses. Taalman adds: “Being ‘budget-funded’, we had to post a nil result. And if we didn’t, we had to offset the surplus or shortfall against fees the following year. So we were faced with a plethora of rules but weren’t allowed to form any buffers.” This system was dropped in its entirety with effect from 1 January 2012.

Scenario thinking

Back in 2004, FENAC had already warned that if an AC got into financial difficulties, there would be no funds in the coffers to get them out of trouble. Moreover, under the new funding and billing system, ACs would have to finance around half of their annual turnover in advance. Taalman notes: “For a lot of long-term, and therefore expensive, treatments, you can’t send a bill until a year after the first patient visit. So the introduction of a free-market system meant that our bank was also faced with all kinds of uncertainties. As a result, it adopted a very commercially-driven view of us, introducing financial ratios and subjecting them to critical review. A bank expects a certain amount of equity, an order portfolio, and contracts with health insurers. All of which were uncertain factors for us.”

In the spring of 2012, health insurers were locked in negotiations chiefly with the large hospitals. The ACs would follow later. Says Taalman: “They were in no hurry, so we had to ask the bank to keep us afloat. But the bank wasn’t going to readily agree. The bank placed Pento under ‘special management’, setting special, stricter requirements with regard to the provision of information and increasing its risk premiums. We had our backs up against the wall.” Pento felt this problem was becoming too big for it to solve alone. “What we needed was scenario thinking: what scenarios can we develop for the future and how can we create a future-proof financing structure? To do this, you need to bring in outsiders who can think fast and develop models. That’s how we began working with Zanders. It bought us some time with the bank.”

A cure for financial ailments

“Continuity was a very real problem; there were doom scenarios of having to shut down certain Pento centers or services,” says Taalman. “When we were up to our neck in problems, we consciously sought media contact through the newspapers. We were taking a risk, but it opened the health insurers’ eyes. They felt a responsibility to help us.”

During that period, Zanders analyzed the situation and created various scenarios for the financing structure. This went hand in hand with an analysis of internal management and the viability of the Pento organization. The bank then had a clear picture of Pento’s prospects and financing risks. At the same time, Pento was able to conclude contracts with insurers, including a generous advance for the care provided in 2012. These developments earned Pento more time from the bank and led to constructive talks about provisional financing arrangements.

“We were able to work out the impact of the fees and volumes from the contracts on Pento’s liquidity position. Things were soon looking up. In the end, our financial ailments only lasted six months,” Taalman continues. “We now have good arrangements in place with the bank, including regarding the anticipated definitive amount of a residual expense that has to be met in connection with the end of the budget-based funding system, with its adjusted fees. We’re talking a huge sum of money, hardly an amount we can readily afford, so it’s very reassuring that we are now discussing the situation with the bank. It means we can start focusing more on care again, which is our raison d’être.”

Billing for 2012 couldn’t even start until January 2013—a problem affecting the whole of the healthcare sector. Because a new funding and billing system has been introduced, the turnaround times for both healthcare providers and health insurers are even longer. “Billing takes place retrospectively, and yet, historically, Pento has not been able to form any buffers. And that puts huge pressure on your working capital,” explains Zanders’ consultant Marlous Pleijte. “Consequently, agreements have been reached with the bank and the health insurers so that Pento can maintain its working capital at a reasonable level.”

Quality improvements

The agreements have worked for 2012, but the whole palaver is starting again for 2013, says Taalman. “According to the Ministry of Health, Welfare and Sport’s macro-management instrument, from 2010 onwards, the healthcare sector is allowed to grow by a maximum of 2.5% above inflation. The expectation is that we will remain within that limit in 2013, because of the internal budget targets we have set and the highly critical review we have undertaken of our investment policy. Moreover, from 2012 onwards, Pento can build equity capital.”

A number of measures have been taken to enable it to satisfy the bank’s requirements. Pleijte explains: “In the end, we set up a financing structure with a loan portfolio and repayment schedules that work well for Pento, with a clear distinction between working capital and long-term loans. Zanders has also designed some practical tools for managing cash flows and long-term financial planning. Taalman concludes: “This gives us a much better overall picture and, by extension, greater clarity, so we are also better equipped to fulfill our obligations, both internally and vis-à-vis the bank. The result has been a huge improvement in quality. We are now in better shape than ever; business was good last year, and the outlook is healthy. All of which is in stark contrast to the situation a year ago.”

TP Vision was founded on the combined assets and skills of two prominent players in the TV business: based in Amsterdam, it is 70% owned by TPV and 30% by Royal Philips Electronics. TP Vision is the exclusive brand licensee of Philips TV in Europe, Russia, Middle East, Brazil, Argentina, Uruguay, Paraguay, and selected countries in Asia-Pacific, excluding China, India, and North America. It is now engaged in developing, manufacturing, and marketing Philips branded TV sets.

“TP Vision is creating a profitable and focused TV company by combining the design expertise and innovative Philips TV heritage with the operational excellence, flexibility, and speed of TPV,” explains Simon Karregat, head of treasury and credit & risk management at TP Vision. Having worked for Philips as head of the dealing room, Karregat really understands the new company’s TV business, which was previously part of Philips Consumer Lifestyle.

He continues: “As fierce competition in the TV market put pressure on margins, TVs were an unprofitable business over the last couple of years. We intend to change this by creating a lean and agile company that is solely focused on TVs.”

Separate entity

To make TP Vision successful and profitable, the company needs to go through a comprehensive transformation process, which had already started long before the official birth of the joint venture on 2nd April, 2012. “In preparation of the joint venture, we separated the TV business from Philips Consumer Lifestyle first. From 1st January, 2012 we reported ‘TV’ as a separate entity,” Karregat says. “It is important for treasury activities that such a fundamental change takes place in a smooth and controllable way. The early measures ensured a hassle-free transition when TP Vision finally took over the TV business from Philips and operated as an independent stand-alone company as of 1st April, 2012.”

Decoupling from a big corporate like Philips was, and still is, a complex process for TP Vision. The disentanglement of the TV business from Philips was a tough challenge because it had been fully integrated into the Philips Consumer Lifestyle business all over the world. This applied to all areas including sales, finance, and IT. One of the most important constraints in the disentanglement was that the operation had to be realized within a very short time frame but with strict cost management. From the beginning of the joint venture, the top priority was cost efficiency and continuing to reduce the breakeven point of the global company. Additionally, achieving Philips’ target gross margin had to be achieved in a highly competitive TV market. This was done by closely managing product costs while selling an improved mix of products (more high-end and larger screen sizes).

New banking infrastructure

To overcome all the challenges related to finance, TP Vision engaged Zanders to support them in setting up a new treasury organization and separating the television business from Philips’ integrated in-house banking structure. This meant that, in a short time frame, not only did Philips’ treasury have to implement and test a new banking infrastructure, but also a new payment infrastructure and a treasury management system (TMS).

At the beginning, TP Vision could take over some elements from Philips and use them right away, such as production units, IT infrastructure, and distribution centers. Other solutions and systems needed to be set up from scratch. “Because of the time pressure, the complexity of the process, and the kernel versions in the original system, we decided to retain the Philips kernel for the time being and to migrate to the leaner TPV kernel later,” Karregat explains. The kernel is the main component of most computer operating systems and thus builds the backbone of most business and finance applications. Karregat continues: “We couldn’t copy the treasury system from Philips because the payment infrastructure of TPV is different.” The company selected IT2 as their TMS. In some countries, however, certain processes (e.g., invoice booking, entering payment proposals, reporting) are outsourced to third parties, such as Infosys. Karregat adds: “We were fully aware that such a complex migration process would cause some initial difficulties as people had to get used to a completely new way of working. This took some time and required a lot of training.”

Bank selection

The selection of a banking partner was another important step in the joint venture’s financial formation process. Karregat says: “After a thorough selection procedure, two banks remained on the list of bank candidates. As we didn’t want to delay our transformation process until the final signing of a contract with one of the two candidates, we started to set up our internal financial structure simultaneously. We created two groups to work on this: one for each of the two banks.”

Karregat had to consider many different factors when building TP Vision’s new treasury, including credit limits and FX limits: “You have to operate differently, with different interfaces and different restrictions for the different countries. We chose Bank of America as our bank because of their global network, and they are providing the necessary limits for us. However, as they do not offer services in all the countries that we operate in, another party sometimes has to be involved. Multiple banks mean multiple sources, whereas with one bank you can use just one banking tool. It all looks standardized but, in reality, it is not: banks have their own policies and procedures, their own formats. Your treasury system must be able to absorb this.”

TP Vision decided to take over the in-house banking concept of Philips. Karregat explains: “With in-house banking you can manage your own internal payments, it provides a better insight into your liquidity, and you can better manage and fund your entities. It is definitely very efficient.”

Zanders assisted Philips in the set up of a stand-alone treasury for the new joint venture. In order to disentangle the treasury and cash management operations for TV, the assistance included:

• The set-up and implementation of a global bank account infrastructure;
• The creation and implementation of a cash management structure;
• Arrangement of local working capital facilities for entities with legal restrictions on setting up cash pools;
• The set-up of an in-house bank;
• The set-up of a cash flow forecasting methodology company-wide;
• Selection and implementation of a TMS;
• The identification and implementation of a hedge strategy;
• The set-up of a proper treasury policy, processes and procedures

Fewer organizational layers

As a big organization, Philips is used to working according to clearly defined standards. However, as they don’t fit TP Vision’s lean treasury structure, the joint venture is now creating its own processes and standards.

“Adequate cash-flow forecasting is essential for our company and we have to manage our treasury exposures thoroughly. The smaller the company, the bigger the risks. We definitely have to trigger a change in employee mindsets. They have to pay more attention to treasury and cash-flow forecasting than before,” says Karregat. In addition, people are more involved in treasury now as there are fewer organizational layers. “For example, we are now much closer to the countries’ treasury. Therefore, treasury has become much more tangible for them. This effect is perceptible throughout the entire organization.”

New IT infrastructure

In parallel, preparations to migrate to a new IT system are in full swing. TP Vision will use the Philips’ IT system for 12 months after the disentanglement and will get its own IT infrastructure in place very soon. This transition will affect both the treasury management system and payment system. “To prepare for this fundamental change, we are running numerous workshops to identify all possible impacts and to find appropriate solutions,” says Karregat.

Karregat concludes: “We have encountered many difficult challenges, but have now reached a phase where many ‘to do’ items have disappeared from the list. While a major renovation was going on in the back of the store, the front needed to remain open and give the impression that there was nothing going on. I believe that we have been successful in achieving this.”

As a bank providing financial services to business enterprises and financial institutions located in North and Sub-Saharan Africa, the Middle East, and the Indian Subcontinent, Banca UBAE relies on accurate and customized credit ratings for its counterparties. While its previous credit rating process didn’t allow for a tailor-made approach, Banca UBAE has recently begun using the EAGLE internal ratings methodology, which gives its credit analysts the transparency and flexibility they need.

The ongoing changes in its markets make counterparty risk assessment more important than ever for Banca UBAE. This Italian bank, headquartered in Rome, has been operating in countries around the Mediterranean and the Middle East since 1972. Trade finance is Banca UBAE’s single most important line of business, and its main products and services include letters of credit, letters of guarantee, discounting, and forfaiting.

In April 2012, the bank implemented the EAGLE corporate rating model, developed by Zanders and available through the FACT web-based platform, developed by Bureau van Dijk.

Customized Ratings

While an external ratings agency such as Fitch Ratings or Standard & Poor’s has a standard and fixed methodology for calculating a rating, Banca UBAE needed a customizable approach, with a tailor-made and transparent credit rating model for each of its counterparties. This is essential considering the specialized and risk-sensitive nature of the bank’s business.

Fabrizia Calvello, a senior credit analyst at Banca UBAE, explains how the bank’s credit analysts customize the counterparty ratings: “In an internal rating, we evaluate qualitative and quantitative information. The analyst is very well acquainted with the client’s core business and balance sheet, as well as the market within which the client operates, so they can insert qualitative data into the internal ratings model.” An important factor is that data is automatically uploaded from the database into the credit rating model. Calvello adds: “For us as a small bank, it is very important to customize the service to our needs.”

Evert de Vries, one of the two Zanders consultants dedicated to the implementation of EAGLE at Banca UBAE, acknowledges that the need for the customized ratings methodology lies in the nature of the bank’s core business. He says: “The bank is working in a challenging environment, so of course it’s very important for them to be able to calculate specific risks.”

Partnership

Considering the specialized nature of Banca UBAE’s business, there was a need for a customizable ratings methodology. The bank had a long-standing working relationship with Bureau van Dijk, a leading publisher of company information and provider of credit risk management solutions. This relationship developed into a regular and established collaboration when, in 2011, Zanders and Bureau van Dijk joined forces to offer a specialized and flexible credit rating product. The EAGLE ratings methodology is based on Bureau van Dijk’s credit risk management platform, FACT, which integrates information from financial databases such as Amadeus.

Thomas Van der Ghinst, business development manager EMEA at Bureau van Dijk, explains how the project was structured and how the elements led to its success: “Zanders was able to customize the standard EAGLE ratings model and calibrate the model according to specific industry sectors – this is one of their strengths. The combination of the Amadeus database, the FACT platform, and the EAGLE credit ratings model makes this a very competitive solution.” He adds: “For me, EAGLE was a perfect fit for Banca UBAE – it met all the requirements of the project goals.”

Bureau van Dijk’s Van der Ghinst also explains that banks often require customizable credit ratings to be more independent from rating agencies. He says: “Working with EAGLE has helped Banca UBAE to better reflect their risk appetite. Internal ratings also help the bank to provide an instant assessment of new clients – this is the key benefit for Banca UBAE. The added value is that you can rate and evaluate companies that don’t have a rating from a rating agency. You can rate any company in the Amadeus database.”

The combination of the Amadeus database, the FACT platform and the EAGLE credit ratings model makes this a very competitive solution.

Jacopo Ribichini, head of the credit department at Banca UBAE.

Smooth Implementation

Banca UBAE implemented EAGLE in April 2012, and the implementation process took about three weeks. So what benefits has Banca UBAE seen since moving to the EAGLE customizable ratings methodology? Jacopo Ribichini, head of the credit department at Banca UBAE, explains: “The product facilitated and sped up the analysis process. At the same time, it became more transparent and precise. The functionality that allows us to adapt the product score from EAGLE with the specific knowledge Banca UBAE has for each customer allows the correct assessment for the commercial relationship our bank has with each counterparty.”

“Furthermore, the product complies with requirements imposed by EU legislation related to risk analysis. The result is a final assessment that is extremely clear, concise, and exhaustive, offering the best conditions for our deliberating bodies to make business decisions,” he adds.

Overall, Ribichini reports that EAGLE had increased the professionalism and efficiency of his department. The implementation was smooth, and Ribichini sums up his thoughts: “Lastly, thanks to the efficient support offered by the Zanders team, I managed the migration to EAGLE without affecting the regular activities carried out by my department.”

Flexibility and Transparency

Reinoud Lyppens, a consultant at Zanders, works with Evert de Vries on the project and adds that other than providing some independence from ratings agencies, EAGLE has two other main advantages: “It is one single platform that enables you to calculate a credit rating for many different industry sectors and counterparties – and, moreover, it is customizable. These two factors were our prime advantages over our competition. We are very open – the model is well documented and validated every year, so I think that transparency is what really makes EAGLE stand out. The client should always understand the process.”

De Vries adds: “Zanders and Bureau van Dijk worked with Banca UBAE throughout the project, not just during implementation but also at later stages, providing advice and support. This post-implementation service is very important in a project like this – when our customer has a question, we are there to support them. We also did some fine-tuning for the oil & gas and commodities sectors for the model. I think the project went well.”

Van der Ghinst adds: “To date, the project has been a real success. The flexibility and professionalism of the Zanders team have resulted in a very positive outcome, which has been appreciated by the client.”

As Banca UBAE is currently expanding and establishing its presence further afield, in Vietnam and Mozambique (as a result of oil & gas exploration), the flexible and transparent internal ratings methodology will be increasingly important to its business.

About Banca UBAE

Banca UBAE, established in 1972 as ‘Unione delle Banche Arabe ed Europee’, is a banking corporation funded by Italian and Arab capital. Shareholders include major banks such as Libyan Foreign Bank, Banque Centrale Populaire, Banque Marocaine du Commerce Extérieur, UniCredit, Intesa Sanpaolo, and large Italian corporate groups like Eni Group, Sansedoni, and Telecom Italia.

Since 1972, Banca UBAE has acted as a trusted consultant and privileged partner for companies and financial institutions wishing to establish or develop commercial, industrial, financial, and economic relations between Europe and countries in North and Sub-Saharan Africa, the Middle East, and the Indian Subcontinent.

Banca UBAE offers a wide range of services and boasts unique expertise in every form of banking relevant to clients engaged in business on Arab markets, from export financing, letters of credit, and documents for collection to finance, syndications of loans and risks, and on-site professional assistance.

Sulzer is a Swiss company specializing in reliable, sustainable solutions for performance-critical applications, focusing on industrial machinery, surface technology, and rotating equipment maintenance. Active in key markets like oil and gas, power, water, and transportation, Sulzer enhances customer competitiveness through innovation. The company operates over 170 locations worldwide.

Expansion into new markets brings challenges on many levels, not least of all financially. When Sulzer, a leading provider of products and solutions in markets such as oil and gas, power, water, and transportation, decided that it needed best-practice treasury and cash management processes to support the developing business operations, the two-pronged treasury project required some external help. Zanders was able to advise on and facilitate a European cash concentration structure and a TMS implementation project.

Sustainable value creation and profitable growth are the ultimate strategic priorities of the company and the financial side of Sulzer’s organization has to be flexible to keep up with the changing patterns of cash flows, revenue streams, investments, and new risk exposures. Treasury needs to move with the challenging cash management environments in new markets, often in developing countries around the world, and it was decided that treasury processes and structures needed to be updated. In 2008, Sulzer’s treasury team embarked on a dual project to implement a new treasury management system (TMS) as well as a new European cash concentration structure.

“In an ideal world we would be able to monitor all the subsidiaries’ transaction data by having access to a data warehouse”

Jean-Daniel Millasson (Corporate Treasurer at Sulzer)

Need for a treasury realignment

Jean-Daniel Millasson, the corporate treasurer at Sulzer, explains that the company has grown organically but also considerably through acquisitions. Today, it has a production and service network of over 170 locations around the world, while back in 2008 it had about 120. He says: “We have legal entities in many countries and each has its own set of bank accounts, banking relationships, and manages its payments and cash management independently of the treasury center in Switzerland, although we give clear directions and guidelines for their treasury activities. We feel it’s very important to further develop in the area of cash and risk management, hence centralizing business support functions such as treasury is a vital way to achieve higher efficiencies, greater transparency and access to real-time information across a broad geographic area.”

With this in mind, one clear goal of this treasury project was to improve cash management and visibility by implementing a Europe-wide zero-balancing cash pool. Equally important was the selection and implementation of a new TMS. Millasson says: “It was clear for me that we needed external support to realize two projects of this magnitude since we are a small treasury team. We therefore decided to conduct a request for proposals (RFP), after which Zanders was selected.”

Cash pool implementation project

The cash pool implementation involved intense interviewing and liaising with Sulzer’s European subsidiaries. Eric Schwarz, head of the corporate treasury center at Sulzer, explains that this data-collection phase of the project was time-consuming. Zanders consultant Bart Timmerman carried out many of these visits and fact-finding missions with Sulzer or on the company’s behalf.

Schwarz says: “During the cash concentration project, Zanders contributed to the success by taking care of that part of the project that we just didn’t have the resources for. They were able to collect and collate data and meet our subsidiaries. Although we at Sulzer didn’t lack the expertise to go ahead and implement the kind of Europe-wide cash concentration structure that we had in mind, Zanders was able to alleviate an important part of the hard work where we needed support.”

The objectives of the cash concentration project were to increase the centralization of cash, to improve visibility of cash balances and flows in Europe, to improve efficiency of cash management, and to later leverage the platform across the organization in a broad geographical sense covering different time zones. The cash concentration project also included an analysis and redesign of the company’s European banking infrastructure and was successfully concluded in 2009.

Gaining visibility and control

The second phase of Sulzer’s treasury transformation was initiated at the same time as the cash concentration project. In fact, the TMS implementation was partially triggered by the need for a best practice system to manage the transaction data generated by the European cash concentration project.

Millasson explains that the previous TMS was not operating in line with best practice and there were still manual processes involved that prevented automated processing of data: “Having a zero-balancing cash pool created a high number of transactions for us – which meant more work for the back office. With the new TMS in place, we’re able to handle this workload. Previously, we didn’t have straight-through processing (STP) or electronic bank statements through our front or back offices,” he says.

Expert advice was invaluable during the selection of a new TMS provider. Sulzer first of all consulted Judith van Paassen, partner at Zanders, and then worked closely with Zanders consultant Bart Timmerman. Millasson adds: “For the TMS project, Zanders’ expertise was crucial. We were looking for professional support on the evaluation of different systems and also on the implementation at a later stage. Even for an experienced treasury department it is difficult to make a decision on an individual system. It was therefore invaluable to work with experts who have in-depth knowledge of the systems.”

Eventually IT2 was chosen but it couldn’t become fully functional until the cash concentration structure was in place, because of the need to have a clear view of the new bank reporting infrastructure. Although IT2 went live with FX deals and reporting in 2009, the full implementation was completed in 2010. Bart Timmerman worked closely with the Sulzer treasury team on the TMS implementation but was also present for much of the European cash pool project. He says: “The two projects were complementary. It was an opportunity for the company to make better use of its idle cash. However, implementing a cash pool without a TMS would have been impossible.”

Millasson adds: “The benefit of the TMS was also that it enabled us to carry out compliance and reporting. It has made a big difference in terms of improving our processes. Of course, data quality is crucial for risk management, too.”

Continuous improvements

While the new TMS has introduced best practice treasury processes, there are still some areas that could be improved, according to Sulzer’s Millasson. He says: “We try to be in a position to best monitor our entities but what we can monitor is limited. We don’t have a common ERP system in the group, which given our business model is not essential, but makes it more difficult for us to access detailed transaction data. At the moment we have to rely on data sent to us by subsidiaries and their analysis. In an ideal world we would be able to monitor all the subsidiaries’ transaction data by having access to a data warehouse.”

In 2011, the new IT2 accountancy module was added for the company’s new cash pool in Australia. Millasson says: “Thanks to Zanders’ knowledge of TMS, this was a short and smooth project, which was nonetheless very important for us.” Currently, Timmerman and his colleague Tobias Schaad are upgrading IT2 to the latest release, while looking at possible enhancements and extended functionality simultaneously with the treasury staff of Sulzer.

“These projects support internal and external growth by concentrating processes
and increasing efficiency”

Jean-Daniel Millasson (Corporate Treasurer at Sulzer)

Future support for a developing business

As Sulzer continues to develop and grow, both geographically and in terms of its markets and technology innovation, Millasson and Schwarz now feel it is well supported by treasury. Millasson says: “We still want our business to grow, so you need to finance it. These projects support internal and external growth by concentrating processes and increasing efficiency – these contribute to growth.”

And like the operational side of the company, Sulzer’s treasury team is not likely to let the grass grow under its feet. Rather, they are constantly looking for improvements to their financial processes. Millasson says: “The immediate projects and priorities are still efficient, to make better future use of the TMS in certain areas, to make processes even leaner, which means having electronic dealing and electronic data submissions from legal entities through the TMS. We also want to roll out our cash concentration strategy to more countries such as Singapore and China.”

Treasury is also considering doing some work to establish meaningful and effective key performance indicators (KPIs) for the business. Millasson explains: “The benefits of KPIs are twofold: a means for continuous improvement and illustrating Treasury’s contribution to the business’s financial performance, and a prerequisite for being able to benchmark against other treasuries. Furthermore, we continuously assess opportunities to expand our in-house bank activities, for instance, by considering how payment factory solutions in certain regions could add value to Sulzer.”

Timmerman summarizes the overall feeling about Sulzer’s treasury project: “What was interesting was that there was dedication at Sulzer and there was a really strong drive to lift the treasury practice one level higher. As clients, they were open about shortfalls in their processes and supporting systems, and this really contributed to the quality and progress of the project. Taking on both projects together was a real challenge and, ultimately, it went very well.”

An iconic character symbolizes the global leader in fiberglass technology. The Pink Panther – an idiosyncratic, elegant, aristocratic yet cuddly cartoon character – is the official corporate mascot of Owens Corning. How much success the character has brought is difficult to quantify. But the fact remains that the American company, with sales of USD 5.3 billion, has been the global frontrunner in the fiberglass market for decades. Applications include building, insulation, wind blades, hockey sticks, tennis rackets, sailboats, and much more.

With a company the size of Owens Corning, it is a challenge to arrange all treasury administration, in various currencies, properly and efficiently. “Our previous treasury management system was outdated,” says Isabelle Badoux, European treasury & credit leader at Owens Corning. “It was not a global implementation, and at the end of the day, we used the system in Europe and North America in two different ways. Also, the system did not support all transactions. In addition, the company had decided to upgrade to SAP 6.0 as a general ERP.” ERP is enterprise resource planning, a system that integrates all (financial) processes within a company.

“The system will be there for several years. There’s only one chance to do it right”

Isabelle Badoux, European treasury & credit leader at Owens Corning

Local knowledge

What can a company do with its current treasury management system and the interface to the old SAP version 3.1i, including posting the accounting entries of treasury transactions? In other words, how was Owens Corning going to integrate a new SAP upgrade into its system? Badoux explains: “We had to consider whether we were going to use the interface of the old treasury system or choose the fully integrated approach. It became clear that the development of a new interface would be a large investment and would have considerable consequences, although it would not achieve full integration. We then made a strategic decision to go for the integrated version of the SAP treasury, migrating to one global integrated version for Europe and North America, which could be implemented in Asia Pacific and Latin America, too.”

This was 2010, a period in which Owens Corning was looking at ways to increase efficiencies within its department. “The new treasury system created an opportunity to review all our processes, aligning them with all global activities,” says Badoux. The company sent out a request for proposal (RFP) to a number of specialized companies. Two of these, Zanders and the American company e5 Solutions, combined an offer for global design and implementation. “We were having partnership discussions with e5 Solutions at the same time both of us received the RFP,” says Laurens Tijdhof, who manages Zanders’ international offices in Brussels, London, and Zürich.

“Our presence here, and that of e5 Solutions in the US, made it easier to have quick, local decision lines. The partnership worked well for Owens Corning, and we have continued this partnership in other fields as well.” Badoux acknowledges: “For global implementation, it helps to have consultants with local knowledge. And we liked the offer. It was very efficient for us.”

For several years

In the RFP process, you need mutual understanding of the scope, says Tijdhof. “It starts with a proposal but, while discussing the scope in detail, the proposal changes and you end up with a document describing exactly what you’re going to do. That way, the number of uncertainties is reduced and the result is clear for both client and consultant.” Owens Corning required help from both a specialist and a generalist, says Badoux. “Since this field is very technical, we really needed a specialized consultant in treasury. I knew Zanders from the interim management perspective of my previous company, and I knew that they have consultants for implementing systems as well. In Europe, Zanders is recognized for its consulting expertise within treasury, and during the project the cooperation between both Zanders and I was always ‘straight to the point’. That made decision-making much easier. Good documentation has been very valuable in the process too, as it shows all pros and cons of all options. Configuration is key. You need to configure well from the start, as the system will be there for several years. There is only one chance to do it right.” The planning was aggressive. The project kicked off in January 2011 and five months later, in July, Europe went live.

In-house bank

At the end of 2010, a month prior to the kick-off, one of the employees left Owens Corning’s treasury department. Badoux says: “One of the Zanders treasury consultants joined us for interim support and advice on daily treasury operations. After that, he was transferred to a new department to assist in treasury accounting, now segregated from the treasury area.” In Brussels, five people are managing Owens Corning’s treasury, foreign exchange (FX) management, and cash management in Europe, including Badoux, who is also responsible for the company’s credit management. The treasury department in Brussels is like an in-house bank for the European entities of the group.

“Structure was crucial,” says Badoux. “Treasury also performs a number of services for hedging the foreign exchange exposure centrally for the entities in Europe. This used to be a manual process, as we had to look at the individual ERP’s of the entities and their balance sheet exposures. Then we had to consolidate it in an Excel template before taking action. That’s now facilitated. We also do the processing of most of the internal and external payments centrally. Not all, but we are centralizing the platform for the electronic banking system. SAP ECC 6.0 is now connected to our electronic banking system.”

The same language

The concept of in-house banking has been common in Europe for some time, but not yet at Owens Corning's U.S. offices. Badoux explains: “One of the advantages of the global design is that we now have in-house banking in the U.S. as well as in Canada. The advantage is that you can offset some flows and avoid certain bank transfers, such as internal loans, optimizing cash management on a global scale.”

Owens Corning is now focusing on centralizing FX exposures in North America, hedging the exposures of Latin America and the Pacific from there. Europe served as a model. "Asia is much less centralized than we are, so the challenge there is clear. We are looking at other companies to find the best way to implement it. But SAP’s treasury functionality has made things much easier; in the U.S., they now have access to our data, and we are working together much more. A major advantage is that everything is standardized and configured in the same way. We speak the same language due to the global design.”

Change and training

In order to achieve the global design, OC Europe had several design sessions with colleagues from the U.S. Badoux says: “We discussed process by process and made various decisions in terms of elements fitting the overall blueprint. It was a short time-line, but all resources from both Europe and the U.S. were dedicated. And having a good resource on the consulting side is then of great importance too.” On behalf of Zanders, consultant Laura Koekkoek managed the project. “In particular, the full-time availability, of both Nicolas Van de Maele and the Information Services (IS) resources in Europe, were very efficient and kept the momentum going,” she says.

After going live, it became clear that two elements should not be underestimated. “Change management is key in post-project implementation,” says Badoux. “People need to have the commitment to work with the system. They have to get to know the system and be curious about it.” Also, the training of people involved is essential after implementation. Within Owens Corning, Nicolas Van de Maele appeared to be the appropriate trainer for his colleagues. And he could work without external assistance. “In the final stage of a project, it’s important to be able to work independently, without an external consultant,” says Tijdhof. Badoux agrees: “A treasury system changes, it is a living system, so you definitely need internal resources for the configuration maintenance.” According to Tijdhof, the main aim is to achieve a stand-alone client. Badoux adds: “And a happy one.”

Building houses, mobility, energy and nature – these are the areas in which Ballast Nedam is active. Customers are large and middle-sized companies, private and public. In addition to building roads and houses, the company installs foundations for offshore wind farms, invests in alternative fuel, extracts gravel, and works to make homes more sustainable. Ballast Nedam aims to be involved in the entire life cycle of projects – development, realization, management, recycling, and funding. This enables an integral approach.

An example is the approach of highway A2 through Maastricht, commissioned by the Ministry of Infrastructure and the Environment, where Ballast Nedam, as part of the combination Avenue 2, is working on an integral solution. The tunnel roof of the dual-layered tunnel will become at a later stage a green strip of nature that reconnects the different city parts of Maastricht. Large projects like these will in most cases be executed through a consortium with other contractors, to spread the risk. Just like the Kromhout military base in Utrecht, a project for the Ministry of Defense, with a value of more than EUR 450 million on an area of 19 hectares.

Life cycle thinking and doing

A public-private partnership (PPP), such as the Kromhout military base, is a form of cooperation between the government and one or more parties. In an increasing number of cases, Ballast Nedam is also taking on the responsibility, after the building phase, of management and maintenance. Such outsourcing of the management means clarity and cost savings for the government. For the construction firm, it is a secure source of income, which in certain cases also increases the room to maneuver when designing the project.

In another PPP-project for the construction of the A15 Maasvlakte-Vaanplein highway, the government posed a mobility question and requested a complete solution, starting with a list of concrete demands. This project is about the widening of the A15 at a busy section and the building of a new Botlek bridge. Ballast Nedam is part of the consortium A-Lanes A15, which is responsible for the design, building, and funding of the project plus 20 years of maintenance, with a value of approximately EUR 1.5 billion. Because of the management component, such projects last longer, sometimes even 30 years.

“These sorts of requests, where the government engages in a contract for many years and outsources the management, are relatively new,” explains Bart Buyck, financial controller at Ballast Nedam Concessions.

They have been in the market for about 10 years and have seen strong growth in this sort of contract in the past five years. That is why Ballast Nedam established its Concessions arm to focus on what we call ‘life cycle projects,’ public-private partnerships with a long completion time. Concessions acts within Ballast Nedam as financier. So how can Ballast Nedam finance these large long-duration projects?

Thinking outside the box

For every PPP-project, a Special Purpose Company (SPC) is established. The project is based around that SPC, which is the link between customer, financier, shareholder (Ballast Nedam and other investors), builder, and manager. With all these parties, the SPC concludes agreements. A PPP-project, with a contract value of sometimes hundreds of millions of euros, will for the largest part – 80-90 percent – be funded privately, by a bank. Depending on the size and the risk of the project, Ballast Nedam is involved in a certain portion, varying from 20 to 100 percent.

Ballast Nedam Concessions acts in the SPC as project manager, quality assurance manager, and process manager. Preferably, it will assume responsibility for the entire project. “In that case, you can make a difference at bids,” Buyck says. “If you continue to think inside the box, you will not achieve optimization. Designer, builder, and manager should decide together what the smartest, most efficient solution is. Only by doing so will you be able to break out of the box.”

Interest rate swaps

For the duration of the contract, the customer periodically pays a fixed amount of interest, repayment, and services. Buyck says: “An interest component is included on the customer’s invoice. When offering a PPP-project, you need to consider the impact of that interest rate and hence fix it. The funding is based on a floating interest rate. Because you receive a fixed interest rate and pay a floating interest, an interest rate risk arises. This risk limits financing possibilities and can have a negative effect on the return. To hedge interest rate risks, the SPC concludes an interest rate swap: it pays a fixed rate to the bank and receives a floating interest rate in return. That is how one can hedge that sort of risk.”

With hedged risks, all parties involved know where they stand. But from an accounting perspective, not all conditions will have been met. Ballast Nedam reports as a listed company under IFRS (International Financial Reporting Standards). IFRS contains rules for the preparation of annual statements and for other periodical financial reporting.

That is the moment when the expertise of Zanders Valuation Desk is required.

Bart Buyck, financial controller at Ballast Nedam Concessions.

“At this moment we have five of this kind of SPCs. In 2008 we were confronted for the first time with IFRS requirements with regard to the valuation of interest rate hedges on SPCs. We engaged Zanders at that time to value the interest rate swaps. Together we set up and refined the methodology.”

Hedge Accounting

Derivatives like interest-rate swaps have to be valued in the books at market value in accordance with IAS 39. Changes in market value must be accounted for in the profit and loss account. This can cause undesired temporary volatility in the result. To remedy that, IAS 39 allows for hedge accounting; a company can – provided certain conditions are met – put the market value of derivatives temporarily on its balance sheet.

Buyck notes: “Every quarter Zanders performs two things for us. Firstly, they determine the market value of the instrument using current yield curves. Secondly, they apply hedge accounting; they use an effectiveness test to determine the degree to which the hedge instrument is still in line with the premises on which it was originally concluded and the underlying funding position. We provide them with our loan positions and the forecasts for the future.”

If you do not apply hedge accounting, you must account for changes in market value in your profit and loss account. If you do apply hedge accounting and you comply with the requirements, you may put it as a provision on your balance sheet. “It is a very technical and specific area,” Buyck says. “All sorts of things are involved in this; the valuation methodology, the accounting in connection with that and finally the financial reporting both internally and vis-à-vis the auditor. But it does create transparency. Thanks to swaps – while causing accounting complexity – we have secure cash flows. This will make it easier to find funding for all the great projects we are still going to do.”

Zanders’ Valuation Desk provides and validates valuations of financial products for all market segments. In addition, experts study the financial markets and analyze market developments. The valuations and analyses of the Valuation Desk are objective and independent. The services of the Valuation Desk include periodic valuations (for example for commodity derivatives), hedge accounting, research, and support when calculating margin calls.

Would you like to know more? Contact us today.

The Delft University of Technology (TU) aims to be a world-class institution with excellent research in specific disciplines. In order to achieve this, it needs good research facilities. A substantial part of the current facilities is up for renovation. How can this be financed in times of cost cutting?

More than 5,000 people work at TU Delft, and 17,000 students study there, preparing for professional life. “The TU is a city in a city,” Rianne van der Slot explains. She is the controller of the real estate management team at the University of Delft. “We own 36 buildings with a floor space of approximately 550,000 square meters. We manage all real estate ourselves, as well as the land. We even own the sewerage and have to maintain it ourselves.”

In 1999, the government donated all university real estate to the TU. Most buildings date from the 1960s and ’70s and are in need of thorough, large-scale maintenance or replacement. “The TU Delft will have to finance this itself,” says Mariëlle Vogt, director of finance at the TU. “The estimated costs of possible new buildings, renovation, and large-scale maintenance for the next 10 years amount to approximately half a billion euros.”

The Ministry of Education, Culture, and Science gives a Government Contribution to the TU on a yearly basis, as it does to all Dutch universities. This amount varies as a consequence of different government decisions and adjusted ministerial budgets and is more likely to decrease than to increase despite the growing number of students.

Vogt says: “Unfortunately, we receive no extra government contribution for these investments in real estate. All universities struggle with the combination of real estate in need of renovation and little resources of their own, but for a technical university like ours, it is even more essential. Real estate is a core asset in our primary process. You need a specific building in order to build a sophisticated lab. At universities, you won’t attract renowned scientists with a high salary unless you also have top-rate facilities, so infrastructure is essential. Only then will you be able to attract the right people.”

Role-play

At the end of 2009, the university decided to make extra savings in order to be able to put funds aside for renovations in real estate, education, and science. The plan was to borrow a limited amount and, in addition, put some money aside every year. From 2010 onwards, however, considerable cutbacks were made in the contribution of the government. “As far as revenues are concerned, The Hague is now an uncertain factor,” Vogt says. “It is really difficult to make funding prognoses for the next 30 years. We have to engage in scenario planning and perform sensitivity analyses to ensure that we can pay the loans back in time. That was a reason to look for external help, from Zanders.”

TU Delft preferred funding from the government: Treasury Banking (in Dutch: ‘schatkistbankieren’). Apart from the fact that it is cheaper, it makes more sense for us, as a university, to borrow from another public body. In addition, the government has sufficient resources available, says Ronald van den Bosch, senior business controller of the TU. “We did not know, however, if we could meet the conditions of treasury paper.”

Together with Zanders, a role-play was developed. Vogt explains: “We prepared everything as if we were going to a commercial bank and then asked Koen Reijnders and Hendrik Pons to take the critical position that a bank would take. By doing this, we wanted to submit ourselves to the discipline of a commercial bank – then you know that you are acting in a prudent manner.”

Infrastructure is essential. Only then, will you be able to attract the right people.

Mariëlle Vogt, director of finance at the TU.

Scenarios

It became clear that the TU was able to meet the conditions of Treasury Banking. The business case that Zanders developed with the TU departments for Real Estate and Finance led to a model with which one could calculate the outcome of all kinds of scenarios. An extra investment in one of the buildings, an unexpected interest development, or a higher indexation of building costs: the consequences of all these occurrences will become clear from the model.

“Together we built a toolbox with which we can – so it seems – anticipate developments,” Vogt says. “It is a custom-made model that extends to 2030 and contains a number of scenarios – different financial prognoses in which there is a constant connection between the overall financial prognosis of the TU Delft and its real estate plans.”

The interests of the two departments differ. Real estate feels the pressure of users that require certain facilities. Finance supervises the prudent use of limited funds. “Zanders has connected these two interests,” Van den Bosch states. “In the case of real estate, one argues on project level, whereas the finance department thinks on a balance sheet level. With the model, the consequences on an aggregated level became clear for both sides – a good joint effort of the departments. By constantly setting the costs of certain investments against the funding of those investments, one can decide what the possibilities are within a certain period of time.”

Towards the future

It happens all too often that such a model is built to support funding but afterwards disappears in a drawer. The TU chose to use the model as part of the process to make timely adjustments, when necessary. Vogt says: “Twice a year – also to inform our supervisory council – we update the investment and maintenance plan, including all financial prognoses at TU level. We have subjected ourselves to this discipline; normally you would leave that to the bank. The model safeguards that this happens in a well-thought-out manner.”

At an earlier stage, it was not necessary to use a “model with scenario buttons,” as the costs coincided mostly with the revenues. The real estate investments were the direct cause. Now the model will be used in future. “Together with Zanders, they have the up-to-date knowledge of the market,” Vogt says. “Our two focus areas this year are the finance and risk policy. Of the EUR 500 million that we spend each year, approximately EUR 350 million comes from the government. Every time, you have to carefully consider which investments you will make that year. The model indicates per year the effect of such an investment on your liquidity, amortization, and maintenance costs.”

No vibrations

“In the case of investments in large-scale maintenance, we look for opportunities to reduce costs toward the future,” Van der Slot says. “Certain investments will lead to energy savings or lower CO2 emissions. Renovation will also reduce certain maintenance costs. It is very interesting to see that in such a model.”

Growth is not the purpose of renovation. It is more likely to see fewer TU buildings than more in the future. With the renovations, the ‘New Way of Working’ will be introduced. BK City, the housing complex for the TU faculty of Architecture, has many open spaces and flexible workplaces. We will introduce renewed concepts of education, such as offering digital classes.

All sorts of rankings exist that indicate the relative position of universities. These are not just based on the number of students, but decisive factors are primarily the amount of research and the number of publications. These, then, depend again on the infrastructure that one can offer. Vogt notes: “Some buildings have to satisfy very high standards, like the building of Applied Sciences. In the Nano labs, the passing of a truck should not cause any vibration whatsoever. It is an interesting but complicated matter. We are not a cookie factory.”