JCI is the global leader and largest manufacturer of automotive batteries, powering nearly every type of passenger vehicle, heavy-duty and light commercial trucks, motorcycles, golf cars, lawn and garden tractors, and marine applications, and a leading provider of building technology, products, and solutions (building automation & controls, HVAC, refrigeration, fire, security, and integrated solutions). The multinational has USD 30 billion in sales and employs 120,000 employees spread over 2,000 locations on six continents. Building automation & controls, HVAC, refrigeration, fire, security, and integrated solutions are part of the Building Technologies & Security (BT&S) division and represent the majority of sales: USD 23 billion. The Power Solutions division has sales of USD 7 billion. One in three cars around the world is powered by a Johnson Controls battery. There are over one billion cars in circulation globally, and with a production of 150 million batteries a year, JCI is a world leader in this field.

Increasingly less automotive

Three years ago, JCI had a very different company profile. Its activities were divided into four divisions, including a very large Automotive division mainly focused on the interior of the vehicle. This division consisted of two parts: Automotive Seating, which manufactured car seats, and Automotive Interiors for the production of dashboards, floor and overhead consoles, and door panels. A fourth division, called Global Workplace Solutions, provided facility management services for third-party buildings. “We first divested Global Workplace Solutions by selling it to CB Richard Ellis. We subsequently contributed our Automotive Interiors division into a joint venture with Yanfeng, one of the largest automotive suppliers in China. Then the company decided to dispose of the entire Automotive division – including the stake in the Yanfeng joint venture – in a spin-off,” says Jean-Philippe De Waele, VP & Treasurer EMEA, responsible for the treasury activities in the EMEA region. “This division eventually became an autonomous publicly listed company called Adient.” But prior to completing the spin-off, JCI merged with Tyco, where JCI’s building automation & controls, HVAC, and refrigeration activities were combined with Tyco’s fire and security activities.

Automotive represented more than half of JCI’s revenue when the spin-off of Adient was announced in July 2015. The operational spin-off had to be realized in a very short time frame, with Adient becoming a fully independent unit under the JCI umbrella by July 1, 2016. All the teething problems had to be identified in a dry run period of several months in order to properly and efficiently execute the legal spin-off on October 31, 2016. After all, the entire Automotive division had to be completely disconnected in terms of processes, systems, and employees.

Systems and people

In a very short period of eight months, a brand new treasury department had to be set up from scratch to support Adient, a global organization with revenue of USD 17.5 billion. In the fall of 2015, JCI was looking for external consultants to assist with the treasury spin-off project. Jean-Philippe De Waele explains: “Because we knew we could never accomplish this without external help, I visited EuroFinance in Copenhagen looking to secure the right consultants. A large part of the treasury spin-off consisted of implementing a treasury management system for Adient. Given the time constraints, we therefore decided to copy JCI’s current treasury systems and processes to Adient. As Zanders successfully assisted JCI in 2010 with the initial implementation of our treasury management system, Quantum, it was a logical choice to reach out to Zanders for this part of the spin-off work as they were already familiar with the system, processes, and people.”

JCI first upgraded its current system from version 4.6 to 6.2 and then cloned it for Adient. Jean-Philippe De Waele: “It was a very intense project as we had to go live on July 1. As part of our global liquidity management and inter-company netting processes, we use a cross-currency notional cash pool at Bank Mendes Gans (BMG). A similar structure was set up for Adient, and Zanders assisted with its implementation.”

Zanders helped us to audit, streamline, and improve the back-office processes.

Jean-Philippe De Waele, VP & Treasurer EMEA

Merger

In January 2016, employees learned that JCI – for the part that did not continue as Adient – was going to merge with Tyco, a company that provides fire and security systems. The merger with Tyco took place on September 1, 2016 – two months before the spin-off of Adient came into effect. As a consequence of the merger, JCI had a new footprint of treasury centers around the world. Jean-Philippe De Waele explains: “The US treasury center of Tyco was located in Princeton, New Jersey, while we were based in Milwaukee, Wisconsin. In Asia, they were in Singapore, and we had offices in Hong Kong and Shanghai. In Europe, they were in Switzerland, while we had an establishment in Brussels. And while we were in Brazil, Tyco did not have an active presence in Latin America. It was clear that there had to be a rationalization in treasury centers. In the US, the office in Princeton was closed; in Asia, everything was concentrated in Shanghai, and in Europe, it was decided to keep Tyco’s treasury center operating as a satellite of Brussels.”

With the merger of the treasury centers in Brussels and Zürich, it was necessary to determine which processes would be conducted where. “Because Tyco had an established and operating back office in Zürich and our back office in Brussels operated post spin-off with temporary workers and Zanders consultants, we decided to centralize our back-office activities in Zürich. Zanders helped us to audit, streamline, and improve the back-office processes, and then we transferred those operations from Brussels to Zürich.”

Trade finance

When the transfer of the back-office activities and other treasury integration work were successfully completed, a new internal project started at JCI: the implementation of a new trade finance system. This project was also a result of the merger with Tyco. Jean-Philippe De Waele: “We have a fairly extensive portfolio of bank guarantees and letters of credit. We have about 8,000 bank guarantees outstanding, amounting to approximately USD 1.2 billion. We also have a large portfolio of parent guarantees. At JCI, we did not have a system in place while an old trade finance system existed at Tyco. The integration activities triggered us to think about what should be done in this area. Move from no system to the Tyco system? Or would it be better to switch to a brand new system? Zanders analyzed the Tyco system and compared it with the current needs of JCI, where Swift connectivity is extremely important. The conclusion of this audit was that the cost of upgrading Tyco’s legacy system would be about as high as the implementation of a brand new system. That is why we decided to implement a new system, GTC (Global Trade Corporation), in which all communications with banks occur via Swift. Zanders is assisting with the implementation and the onboarding of the various banks on GTC and Swift.” The project started in mid-September, and the first bank will go live in February 2018.

Decommissioning

With the merger, whereby Ireland-based Tyco International Plc acquired the US-based Johnson Controls, Inc., the new parent company (Johnson Controls International Plc) was incorporated in Ireland. “As all our derivatives trading is done in the name of the parent company, a lot of work was done in transferring our hedging activities – FX and commodities – from the old (Johnson Controls, Inc.) to the new (Johnson Controls International Plc) dealing entity, and Zanders supported us with this transfer,” says Jean-Philippe De Waele. “Tyco operated a very large in-house bank which we decommissioned. In addition, we dismantled Tyco’s notional cash pool and integrated it into our BMG cash pool structure. We transferred all Tyco’s hedging activities from its treasury management system (IT2) to Quantum, and all Tyco banks were on boarded on our AvantGard Trax system (Global Payment Factory) and Swift.”

Awards

The list of projects gives an indication of the extensiveness of the treasury operations at both companies. After the spin-off of Adient, Johnson Controls was a company with USD 20 billion in sales. Tyco was a company with sales of USD 10 billion, bringing total group sales to approximately USD 30 billion. As Jean-Philippe De Waele notes, “During the merger of two such large companies, there are significant integration efforts at all levels, including the treasury level.”

Looking back at the projects, Jean-Philippe De Waele is very satisfied. “The work accomplished for the Adient treasury spin-off was impressive,” he says. “This is also recognized outside of JCI. We obtained two awards for the work that we have done in this regard. One from CFO Magazine as ‘Best finance team - best treasury practices’, and one from Treasury Management International Magazine, for ‘Best Treasury Transformation’. In addition, we received several requests to share our experiences concerning this project - including ATEB, the Belgian Association of Corporate Treasurers and at the EuroFinance conference. Our practices have become a showcase for many people on how to best handle a spin-off and carve-out of a business division.

Future

Under Jean-Philippe De Waele’s stewardship, there are still a number of ongoing integration activities relating to banking and cash management that will continue over the next 12 months. “Zanders will remain onboard until an initial group of countries have become active on the new trade-finance platform. Meanwhile, we have completed the recruitment of our additional analysts, who will be managing our BMG cash pools.” We are never sure what the future will bring, notes Jean-Philippe De Waele. “The company has been very active in M&A and divestments over the past three years and publicly stated that it is focused on creating long-term shareholder value in the remix of its business portfolio. For example, as we were integrating Tyco, the company decided to sell part of its business (Scott Safety) to 3M, a US company. So who knows…”

Gasunie, which is wholly owned by the Dutch government, transports natural gas through more than 15,500km of pipelines in the Netherlands and Germany. In addition to these pipeline systems, Gasunie’s assets comprise hundreds of installations, including one for liquefied natural gas (LNG), an LNG import terminal and facilities for underground gas storage. Every year, the company transports approximately 125 billion cubic meters of natural gas, equal to about a quarter of Europe’s total gas consumption. As a bona fide gas country, the Netherlands has become ‘Europe’s gas hub’, the central trading place for gas.

Terrific challenge

One of the government’s key objectives is to make the Netherlands one of the most sustainable countries in Europe by 2020. To limit climate change, the country is currently working on an energy transition: a switch to a CO2 free energy supply. This means that fossil fuels will increasingly be replaced by fully renewable energy sources, such as solar, wind and geothermal energy, and biogas. Due to this, natural gas, which is undisputedly the least polluting fossil fuel, has now been cast in a somewhat less-than-positive light. “You just have to mention energy transition and the level of uncertainty is very obvious,” says Janneke Hermes, manager of corporate finance & risk advisory at Gasunie. “And there are plenty of givens. But many people don’t have the right information – about the reliability of energy sources, their costs and what they can be used for. Solar panels on roofs have become symbolic of renewable energy, but even if they covered all the roofs in the Netherlands, they could only generate a limited percentage of the country’s energy requirements. So much more needs to be done. The role played by gas is, and will remain, crucial in the energy transition. This will increasingly be renewable forms of gas, such as gas from biomass, or hydrogen that can be obtained from wind energy. But natural gas also has a role to play, because it can reduce CO2 emissions significantly using it instead of coal in power stations. The big challenges we face are how to connect all the energy lines in the near future and how it should all be organized. It’ll take a lot of time and money and it constitutes a very substantial challenge for the Netherlands and the rest of Europe.

Hydrogen

Gasunie is already involved in a number of innovative projects. “Many impressive projects are already being carried out, by players big and small,” explains Hermes. “TenneT, for example, wants to harvest offshore wind energy on the North Sea, on a large scale, and our contribution can be to convert the excess electricity into hydrogen and transport it via existing gas pipelines to land, where it can be used as renewable fuel.” Adding CO2 to hydrogen produces methane, which can be introduced to the gas network as a gas. A further advantage of doing this is that hydrogen, or the gas that it helps to produce, can be stored as a buffer for subsequent energy generation or use. Many industries already use hydrogen in their production processes, continues Hermes. “Naturally, we are exploring how, with the existing infrastructure in our country, we can optimally exploit and facilitate this fact.”

Into Europe

In addition to its network in the Netherlands, Gasunie also has one in Germany, which also plays a key role in the security of supply of natural gas to the Netherlands. “Our number one strategic pillar is to remain the reliable, safe player in the Netherlands when it comes to gas infrastructure,” assures Hermes. “To this end our focus is very much on the storage of energy, during both the summer and winter and on a daily basis too. In other words, monitoring peaks during the day and deciding how to cope with them. Our second pillar is the facilitation of the gas markets elsewhere in Europe.”

While in the Netherlands gas has fallen out of favor – as a result of the earthquakes in Groningen, for example, and because it’s a fossil fuel – the opposite is true in the rest of Europe. Gasunie’s strategy looks beyond the Netherlands, Belgium and Germany. “We are looking further afield – the gas market is developing very strongly outside the North European area. The further you venture into Europe the more popular gas seems to be, to the extent that in some regions it’s akin to an emerging commodity. Thanks to our knowledge and expertise we can help, facilitate and invest in those markets. For example in the construction of new pipelines and networks, and new LNG terminals. I’m talking about countries in which we want to accumulate experience step-by-step, starting off by providing advice and service. Later this can be expanded into participation in a consortium in proportional stakes. We want to build up our presence incrementally.” According to Hermes, the third strategic pillar focuses on the afore-mentioned energy transition. “We are increasingly and emphatically demonstrating just how important a role we can play in all this. By supporting solar and wind energy, offering gas as a back-up, and making our own products more sustainable, or green. Green gas, by the way, is the same quality as natural gas. We are working on innovations that should lead to an increase in scale in the supply of green – so sustainable – natural gas.

Diversified supply

Alongside the transport of gas, Gasunie is also focusing on heating networks based on geothermal energy or residual heat. “Together with Eneco, the Port of Rotterdam Authority and Warmtebedrijf Zuid-Holland, the so-called Heat Alliance, we are trying to make optimum use of residual heat produced by the Port of Rotterdam for heating in the immediate region.

We are striving for open access in that market, with all customers and suppliers enjoying access to the infrastructure. Independence has always been a key aspect of what we do; we have no interest in the commodity. We make it possible for the various players – such as producers, customers, traders – to find one another. Our range of activities is currently very broad, from doing the right things today to exploring what’s possible in terms of tomorrow’s services and facilities and how we can contribute to their realization.”

The energy supply in the Netherlands is strongly dependent on gas. In 2016, a third of all energy in the Netherlands was supplied by natural gas. And due to the reduction of production from the Groningen field as a result of earthquakes in the province, its dependence on countries like Russia and Norway seems to have increased. This is why Gasunie wants the supply of gas to be as diversified as possible, says Hermes. “Customers find it important to have options; it prevents unilateral dependence. In this respect, southern Europe is gaining in importance because that’s where gas from the Middle East comes in. As a supplier of gas, Russia is still a very important partner for all of Europe, but this only strengthens the argument that LNG could be an excellent way of realizing the desired diversity.”

New Role

But just what do all these developments mean for the activities of Gasunie’s treasury? “Having made the necessary investments in the Netherlands’ existing gas infrastructure, we can now generate the kind of cash flow we expected,” insists Hermes. “Consequently, this will reduce the amount of debt we’ll need to take on. We have a reasonably diverse long-term loan portfolio and once that’s matured we’ll no longer need to refinance the full amount, which translates to a moderation of our financing needs. For our international activities, however, it’s not yet clear how much funding we’ll need. The same is true when it comes to green gas and supercritical water gasification projects. Relative to our assets, these all represent modest investments, but we don’t yet know how big they will become in future. Once their success has been proven, we’ll scale up projects like these. In terms of financing requirements, ours are indeed very diverse.”

That diversity has not escaped the attention of Gasunie’s treasury, while Hermes’ own role has also changed and become more diverse. “Suppose we’re talking about a benchmark loan of €500 million, it won’t be a problem because we’ve done something similar in the past. But if the discussion is about a new biogas hub with several farmers from Twente, for example, the dynamics become very different. We don’t yet have a contingency plan for something like that so we’ll need to be extremely flexible.” When financing these new, different types of projects, the sums involved are a lot lower, but the same cannot be said about the time the treasury has to invest. “That can sometimes be inversely proportional,” concedes Hermes. “But the contacts are also very different and this calls for a completely different skillset to what was needed before.” It also means that advice is asked more frequently from within the organization, she acknowledges. “Whereas we initially provided corporate financing, we now also extend loans to the business units themselves. This too calls for a different dynamic.”

Sustainable Cooperation

The first advisory role played by Zanders in Gasunie’s treasury activities dates all the way back to 2002, says Hermes. “So for me I’ve only known collaboration with Zanders. Back then it included SAP implementation, in which all kinds of instruments had to be configured. Since then we’ve been in constant contact; whenever the treasury needed support, we contacted Zanders. In May 2016, Lisette Overmars even took on the role of interim treasurer for several months. Our most recent collaboration was the adaptation of our treasury statute, which was necessary because we wanted our treasury policy to be aligned with our new objectives. In a broader context, Zanders has always proved an excellent sparring partner, one that asks us the right questions and provides the necessary structure for tackling the challenges our treasury faces. It’s what I’d define as an excellent and sustainable collaboration.”

If you would like to know more about treasury solutions in the energy sector, please contact our Partner Laura Koekkoek.

Treasury transformation refers to the definition and implementation of the future state of a treasury department. This includes treasury organization & strategy, the banking landscape, system infrastructure and treasury workflows & processes.

The International Organization for Migration (IOM) is the principal intergovernmental agency in the field of migration. Due to increasing migratory flows over the past decade, which have escalated in recent months, the organization realized that its treasury needed a transformation in order to continue supporting the organization and its cause.

The IOM is committed to the principle that humane and orderly migration benefits both migrants and society. The organization was established in 1951, then known as the Provisional Intergovernmental Committee for the Movement of Migrants from Europe (PICMME), which helped people resettle in Western Europe following the chaos and displacement of the Second World War.

In subsequent years, the organization underwent a succession of name changes to the Intergovernmental Committee for European Migration (ICEM) in 1952, the Intergovernmental Committee for Migration (ICM) in 1980, and the International Organization for Migration (IOM) in 1989. These name changes reflect the organization’s transition from a logistics operation to a migration agency. The IOM’s members currently include 157 states and 10 observer states. It has offices in more than 150 countries and at any one time has more than 2,500 active projects ongoing.

It works to help ensure the orderly and humane management of migration, to promote international cooperation on migration issues, to assist in the search for practical solutions to migration problems, and to provide humanitarian assistance to migrants in need, including refugees, displaced persons, or other uprooted people. The organization works closely with several partners in four broad areas of migration management: migration and development, facilitating migration, regulating migration, and addressing forced migration. The IOM assists in meeting the growing operational challenges of migration management. It aims to advance the understanding of migration issues and encourages social and economic development through migration, while upholding the human dignity and well-being of migrants.

Differing paces

In 2008 and 2009, the organization went through a major transformation. “As recently as 10 years ago, the organization was still executing payments manually at its headquarters – payment by payment,” says Malcolm Grant, head of treasury at the IOM. With a new enterprise resource planning (ERP) system, the IOM took its first step towards improving its treasury. But more change was needed. While migration activities were growing – leading to increases in staff, projects, and donation allocation – treasury didn’t grow at the same pace as the rest of the organization. On top of that, in the years thereafter, the financial crisis resulted in a sharp increase of compliance requirements. “Due to all these developments, our treasury was way behind where it should have been.

The impact of the organization’s growth in an outdated system environment was that people looked for solutions by firefighting; they built up several different systems and various ways of working. For example, new bank accounts were added, instead of using existing bank accounts and relationships. We found ourselves with more than 700 accounts and over 150 bank relationships. We needed to bring treasury back to the heart of the organization – a huge challenge, because we needed more people, more up-to-date technology and improved governance.”

Due to the tight funding in the years following 2009, it was a slow process, says Grant: “From a treasury point of view, we look like a corporate; we get money in, we pay it out and invest it. A corporate has a profit motive, a different set of values and different stakeholders. So there are cultural differences and due to political issues some things don’t happen as quickly.”

A treasury blueprint for the future

Eventually, the organization’s management was persuaded to review its treasury. Grant explains: “So in 2012, we initiated the ‘treasury review’ project. We wanted a comprehensive wide-reaching review that tackled just about all key areas of treasury. Therefore, we asked some consultant firms for treasury advice and after some meetings we hired Zanders to reinforce and challenge our assumptions. And it turned out to be a great step; they added deep knowledge of treasury, markets, and best practices, and together we built a very strong business case showing what needed to be done in our strategic planning to overhaul our treasury.”

Based on the organization’s strategy, Zanders helped IOM in writing a blueprint for the future, based on a number of areas such as treasury management, financial risk management, and treasury governance. “And a few months later we started our ‘global treasury design’ project, aimed at scaling up our treasury operations. But then the question was how to get there. So, how could all issues be improved?”

Treasury risk committee & governance

But before IOM’s treasury realized these three objectives on the technical side, it had already looked at some of the ‘no-cost’ recommendations. Grant says: “In terms of structure, we were very keen to make sure we had a written treasury policy – we now have one. We also lacked an annual treasury plan, which we have now introduced. And one of the most important aspects was setting up a treasury risk committee, which brings together some senior managers in finance and one from operations. They have now been meeting quarterly for two years and it has added enormously to treasury transparency. Moreover, it’s a two-way channel; it has also been a very effective channel for feedback into senior management – to show what treasury is doing and what we want to achieve in the near future. As a result of the review, some serious and valuable changes have been made.”

Grant’s treasury department worked hard to realize the targets as described in the roadmap. He needed some assistance in finding the organization’s banking partners for its cash management, to solve the problem of a too widely dispersed bank portfolio and bank account structure.

“We need to see what money is where,” says Grant. “We don’t see certain key collections in our accounts. Different field offices have different cultures; some are very proactive and engaged in centralized cash management, yet others aren’t. Therefore visibility is very important and a big challenge.”

Simplifying bank relationships

So, last year, IOM asked Zanders to conduct a European Cash Management RFP. Grant notes: “The number of bank relationships was over 150 across our organization. When we did the European RFP, we had 39 countries in scope with 38 different banking parties in those countries. Depending on the region, you could begin to centralize payments. We don’t need to have bank accounts all over Europe, for example. So instead of having 38 bank partners, in the future we may only have five or six.”

Based on IOM’s requirements, five banks were shortlisted for its cash management bank selection project with a pan-European scope. Zanders helped to write the RFP document, was part of the bank selection, managed the evaluation process, and supported the recommendation to senior management. IOM now has just two banking partners and has started the implementation with both banks. “And it’s going very well. We have good support from our internal IT team, which is extremely important. We did a lot of homework and research in Europe, mission by mission, to establish all treasury requirements and banking needs in detail.”

The strategic recommendations that Zanders gave were gathered in a roadmap for IOM’s treasury, with a prioritization of projects and focus areas. Grant adds: “We started by looking at three key achievable short-term objectives – things we could do within one year. The first was to bring on board the foreign exchange trading platform, 360T. The second was to bring on board a treasury management system (TMS). Third was to conduct a cash management RFP (request for proposal) in Europe for banking services. These objectives have been met; the systems are now live and working. There is still some additional TMS functionality to bring on board, but the initial level of functionality related to reporting and basic payment processing is available.”

The end of the beginning

“Our department is now about a third of the way to where we want to be. Centralizing payments and having payment factories, for example, is still years away for IOM; that demands a phased approach. In terms of payments, reconciliation, pooling, and technical architecture, we are improving our basic structures; we are looking at in-house banking (IHB) and payment factories. You need to walk before you can run. To illustrate it in an appropriate quote from Winston Churchill: ‘This is not the end, it may not even be the beginning of the end but it is the end of the beginning.’ I think that’s where we are now.”

Despite the many tough challenges for IOM’s treasury department, working for an organization in the field of migration gives Grant both energy and satisfaction. “Treasury is a humble servant of the dedicated workers doing the tough job in the field. We are just here to take a potential set of problems away from them. By, for example, ensuring that they have enough liquidity so they can do what they need to do, ensuring they do not get into trouble with local compliance, get best value in buying local currency, and ensuring they have proper banking partners and accounts. Our advice and expertise is a key area of support to the local missions, thereby ensuring that the mission activities in the field are not held up due to treasury issues.”

IOM’s key strategic focus areas:

• Migration management; helping migrants in any way possible regarding security.
• Operations and emergencies: ready to react rapidly to emergency events such as earthquakes or military actions. IOM is not a refugee agency – that work is done by the UN – however it works closely together with UNHCR.
• International cooperation and partnerships: including relationships with donors. IOM is very active in the development of international migration law. It has a team of lawyers and a department working on clarifying, establishing, and modifying international law, as far as it relates to migrants.

The St Jacob Foundation provides care and services to the elderly in the Dutch South Kennermerland area, aiming to give them control over their own lives for as long as possible.

Quality of life is key to home care concepts, as St Jacob showed in their business case which was presented in March 2012. The traditional ‘old people’s home’ has given way to a totally different form of care for the elderly. “Most of our premises stem from the early 1970s,” says Rob van der Hulst, program director of Real Estate and Development at the St Jacob Foundation. “With the type of client we have nowadays this is not sustainable. When the premises were built our target client base was the over 65s who liked to be cared for. In the prosperous areas of Haarlem and the surrounding areas there were often no health issues but rather a preference for a worry-free existence coupled with keeping the luxury they were used to. The domestic assistant sometimes moved with them, for example to an attic in the same building.”

External partners

The foundation’s history goes back a long way, as far as the Middle Ages. The current St Jacob arose from the merger of a number of independent residential and care homes in the Haarlem, Heemstede, and Bloemendaal areas. The latest amalgamation dates from early 2000 and today the foundation has nine premises. Anita Louwers has been the director of the St Jacob’s board of trustees since 2006, when they took their first steps towards a marketing approach to care. “From that time on, care and nursing of the elderly has become faster, more intense and more complicated,” she says. “For that reason, we have opted to find partners to deal with everything which is not directly connected to that complex care, such as help within the home and cleaning, but also the expertise we need in the areas of finance and property. We are becoming a leaner organization: in-depth care with a thin layer of overhead for the relevant support personnel.”

This is a significant difference between St Jacob and other institutions in the country, many of which are more autonomous. Van der Hulst adds: “As an organization we want to stay close to our core function; we are good at intramural and extramural complex care, but other parties are better at what has to be done on the sidelines. The target group has changed considerably over the past few years. The senior citizens, those above 65 years, still live at home, travel and play golf twice a week. Those who now occupy our premises are the over-85s, who are also less mobile, but even in this age group we are noticing changes and, with support, a number of them can still live at home. This group of ‘light clients’ no longer use intramural care facilities, so only the clients who require dedicated nursing remain. “And this group is increasing constantly. People are getting older and the numbers with dementia are increasing as well. We are focused on this growth, but also on recovery and revalidation of the aged,” says Van der Hulst.

Living career

The fact that the aged are requiring more complex care has consequences for the employees of care agencies. “We used to be able to employ semi-skilled people but nowadays care is no longer so lightweight,” says Louwers. “Last year we retrained 500 employees to a higher level of competence. Today, employees have to have specific knowledge about various illnesses and they have more to do with psychiatric problems. Also, care at home is much better organized; people who have had treatment in a geriatric revalidation center go home far earlier and doctors and physiotherapists can also provide care at home.” The trend towards more specialized care was already evident to the foundation in 2007.

Louwers explains: “Since then we already started thinking in terms of housing ladders for our clients. Renovations are often more expensive than new buildings so we began to look at properties more as investors; the properties had to keep their value, we had to build to fulfill market demands and we didn’t want to run any risk. We want to own all properties geared for specialized care, whereas for homes with their own care facilities we want to find investors or co-operate with housing corporations.” These objectives were set out in the Strategic Property Plan which was written in 2007 but which has been modified in certain areas in the meantime. All types of accommodation have to be flexible so that if one target group declines in number another group can live in the same building.

Business case

Between 2007 and 2010, St Jacob developed a multiyear management model in which all future income, property transitions and care programs were covered, from the current to the new situation. Following the real estate plan, St Jacob decided to (re)develop several locations for revalidation care, small-scale group housing and care flats. For the benefit of the financing application, the foundation also prepared a detailed business case which was completed at the beginning of 2012. In the meantime, the foundation started looking for an external expert. “A recommendation and a number of positive references led us to Zanders,” says Louwers.

We already have quite good financial know-how in-house for presenting a business case, but they (Zanders) were able to fine-tune it.

Anita Louwers, Director of the St Jacob’s board of trustees

According to Zanders consultant Hendrik Pons, St Jacob’s business case was convincing. “And above all it was explained very clearly by the foundation. Together this immediately gave the banks a positive impression,” he says. Van der Hulst adds: “Zanders reviewed the multiyear management model and sat down with us round the table during discussions with financial institutions. I am convinced this helped considerably and of course being safely in the black helped as well. We own almost all of the properties and were also able to sell one at quite a favorable moment in time. From three banks and the Guarantee Fund we finally got positive reactions.” The Care Guarantee Fund (Wfz) gave us a 100% guarantee on our new application,” added Pons “and that gave us a significant interest advantage.”

Differentiation

The financing application resulted in St Jacob obtaining a loan of €30 million. Louwers says: “This is rather unusual at the moment for a turnover of €60 million. And it is fantastic since we need property for new clients – often those with severe dementia – to be housed in a way that best suits them.”

Financing is agreed and will be used in 2014. A number of building plans are ready, including Overbos and a building with room for 100 clients with dementia and a revalidation center. Van der Hulst explains: “We are spread over three different towns and that means that we have to have different types of facilities available. With homes where people pay their own living costs they can start working on their own housing ladder earlier and can stay in their own home if their need for care increases. A good example is Nieuw Overbos, which will be opened in a year’s time. Here there are lovely flats for people aged 75 and above. There are many care facilities, such as a doctor and round-the-clock services. But we are here for all senior citizens; on the Aziëweg we are building a complex for council rental.”

By separating housing and care there is a lot more differentiation, according to Louwers. “Many people are prepared to pay for what they want. The Netherlands is a country where the AWBZ (National Act on Exceptional Medical Expenses) is too general and uniform in its coverage and this doesn’t suit everyone. I think it’s good we are a forerunner in the developments.”

More efficient

Louwers also thinks that this new approach will mean resources are used more efficiently. “We started the transition phase with a turnover of €60 million for a large category of quite easy clients. When we are finished we will have a turnover of just under €50 million for a group of difficult clients and we will have €10 million left over for care at home – which is quite a lot. Someone who lives at home is still responsible for the accommodation component and that makes long-term care more affordable.”

So the St Jacob Foundation is becoming more like a company, adapting to and playing on the market forces we are experiencing. However, St Jacob is suffering from the consequences of governmental intervention and the health insurers’ shortsighted policies. Louwers adds: “You can’t really talk about market forces because they are controlled by legislators and insurers. However, if we function well as a care provider by adapting to the needs of our client base, then our buildings will fill up of their own accord.”

How did Zanders work with the St Jacob Foundation?

• Help in preparing the business case
• Participation in talks with the banks and the Care Guarantee Fund (Wfz)
• Various memos on internal decision making
• Continuous treasury support in the form of a service subscription from early 2013; preparation of the annual treasury plan, participation in the treasury committee (strategic), participation in the monthly treasury meeting, treasury tools (loan module, liquidity forecast model).

In 2012, FrieslandCampina was given an honorable mention at the internationally renowned Adam Smith Awards for its bank relationship management. The global dairy company was recognized for its successful refinancing program. This article looks at how ‘wallet distribution’ and strategic bank relationship management allowed the company to maneuver with agility during the financial crisis.

In January 2009, Friesland Foods and Campina, the two largest dairy cooperatives in the Netherlands, merged under the name Royal FrieslandCampina N.V. and Dairy Cooperative FrieslandCampina U.A. The company’s stock is owned by nearly 20,000 members of the merged dairy cooperative – dairy farmers in the Netherlands, Belgium, and Germany. The company is located in 28 countries worldwide, and FrieslandCampina’s dairy products are exported, particularly from the Netherlands, to more than 100 countries.

Growing markets

Several international brands are owned by the dairy cooperative. The biggest Dutch brand, Campina, is the cooperative’s fifth-largest brand. FrieslandCampina’s impressive turnover and growth is particularly noticeable in Asia and Africa. The biggest brands in these continents are Frisian Flag in Indonesia, followed by Peak in Nigeria, Dutch Lady in Vietnam and Malaysia, and Friso – the fastest-growing brand – which is sold in China, Malaysia, and Vietnam, as well as other countries. Next to Peak, the Friso brand recently started selling baby and children’s food in Nigeria, where the number of babies born equals the total in Europe, making it an extremely attractive market.

This year, FrieslandCampina acquired a majority interest in Alaska Milk Corporation, one of the largest dairy cooperatives in the Philippines, with a turnover of EUR 250 million. In the Philippines, too, where the economy and the population continue to grow, the dairy cooperative intends to sell baby and children’s food. These are mouthwatering prospects as far as investors are concerned. FrieslandCampina’s figures also confirm the security that dairy produce offers: turnover grew from EUR 8.3 billion to EUR 10.3 billion during the first four years of their existence.

Visible banking services

However, the merger began at a time when insecurity reigned supreme. The merger between the two dairy producers entailed a change of control situation that called for refinancing: the existing bank financing needed a make-over. This was quite a challenge, coming straight after the fall of Lehman Brothers and the start of the financial crisis. The banks weren’t exactly lining up to offer refinancing of this kind. For this reason, FrieslandCampina started negotiations with a wide selection of banks.

“The size of our wallet was important to the banks,” says Klaas Springer, FrieslandCampina’s director of corporate treasury. “They were perfectly happy to join FrieslandCampina’s group of financiers and commit themselves to our balance sheet, but they also wanted to earn money from the services that our internationally operating business needed. That was when we made a clear commitment: if you come on board, we’ll have a ‘best efforts’ obligation to reward you proportionally. After all, one bank’s service is better than another’s. If you finance 100 out of the 1,000 as a bank, it doesn’t necessarily follow that you will always get 10% of the wallet; the only guarantee that you have is that you will get the opportunity. A bank that has slightly more to offer FrieslandCampina, for instance, may get 12%, but if you’re offering less, then you may only get 8%.”

To be able to prove what the bank and FrieslandCampina had to offer each other, the relationship needed to be quantified. This is a considerable challenge given the various banking services that the organization needs – from ordinary payment traffic to cash management services, to setting aside deposits, foreign currency transactions, interest rate derivatives, and advice about acquisitions.

In order to make this complicated set-up more transparent, we looked for a model, an approach that we could ultimately manage properly ourselves. This is how we ended up with Zanders in 2010.

Klaas Springer, Director of Corporate Treasury at FrieslandCampina.

Wallet Distribution

An important part of the financing is done through private placements, including insurers in the United States. “In addition to this, we need bank financing to be the ‘flexible shell’ in our financing set-up,” says Springer. “We need the availability of large sums to deploy flexibly as working capital, for acquisitions or investments – i.e., for general corporate purposes. We try to cover virtually all our needs with this banking group that has provided us with EUR 1 billion. This doesn’t work with banks that only want to give you money but have nothing extra to offer."

“As a business, you have key relationships: the banks that you see as trusted advisors and that you are in touch with on an almost daily basis. Besides this, we also want a diverse group of banks that have a moral commitment to one another. They must all be prepared to stick their necks out so that it all goes well in the long term.”

With Zanders, it was down to the Wallet-Distribution model when FrieslandCampina divided their portfolio across the banks they had selected. “That model was workable for us,” Springer says. “We were looking for a reliable Golf, not a Rolls Royce. We had to get the model up and running before entering all the data. Some banks are quick to give you insight into what they’ve done for you, and are quite open about it. But others are not so easy or flexible. Large international banks, for instance, don’t always have insight into what they’re doing for FrieslandCampina worldwide.”

Sander van Tol, partner at Zanders, adds: “They can’t consolidate all the internal information the way you want it, for example. Besides that, they don’t have sufficient insight into the overall portfolio of banking services that you use as a company. As far as that goes, to them, it’s like a game to see how they feature in the overall picture.”

FrieslandCampina used its own data for those banks that couldn’t supply the necessary information. Once everything had been processed in the model, it showed how much they were each entitled to on the basis of their contribution. Logically, some banks were happier with the results than others, but for most of them, expectations were met.

Open attitude

At the beginning of 2011, before the refinancing took place, FrieslandCampina approached its banks to discuss the results. Springer says: “At the time we said to our key partners: ‘This is how we see our relationship, how do you see it?’ The banks really appreciated this open attitude. They proposed the following: ‘We think we have X percentage of your FX management, is that correct?’ We didn’t give them an exact answer to that question – it’s all about the big picture, after all. The point of our story was that they would have to be happy with the information we shared with them and that FrieslandCampina had stuck to its side of the bargain. Apart from one or two, all the banks were satisfied. And we were able to explain to those few where the problem lay. To give an example: when we looked at cash management in the US, some of the banks fell by the wayside because cash management wasn’t part of their package – there was no point in inviting them. In this case, it’s not the Friesland Bank, but Citi, RBS, or HSBC who are invited. And that’s when there’s a winner. If a bank keeps missing the boat, then they get less than their share, proportionally. We say that something is not quite right: in the breadth, they simply don’t have enough to offer.”

Renewal

Shortly after the feedback from the banks, financial markets came under pressure once again in the summer of 2011, this time through the Greek debt crisis. In August, financing was discussed once more: the then EUR 1 billion facility was due to expire in 2013. “We approached the banks again and told them we wanted to refinance or renew the existing financing – but this time at a better rate.”

The banks recognized that they could benefit from a well-balanced cooperative relationship with the international dairy enterprise: the price wasn’t a major stumbling block for them. “It was more a question of timing, making an offer in a volatile market. All the big banks but one were with us in this respect. For us, renewing the financing until 2015 was better than new financing. We suggested that one bank join the rest. In the interim, we had two dark horses: banks that were keen to join the group. But, in the end, one bank agreed to the proposal.”

Apart from removing insecurity, the renewal proved to be a good solution from a cost point of view as well. Springer notes: “In 2009, we had to pay fairly high fees; it was a difficult market. By renewing now, we spread the costs that we incurred then over several years. In retrospect, the financing turned out to be cheaper than expected.” It won’t be possible to renew again, though. The firm will have to make a new deal. “A disadvantage of this is that you have to include all the costs that you incurred in the old transaction in your profit and loss account in one go,” Springer explains.

Highly commended

Every year, Klaas Springer sees the Adam Smith Awards announced in trade magazine Treasury Today. “And that’s when you think: have we got anything special to contribute this time round? This time we had a combination: throw the spotlight on portfolio management as a banking service and managing a refinancing project under very difficult market conditions. We decided to compete: we didn’t quite win, but we got a ‘highly commended’. The silver medal – enough to put us on the list of honors.”

An even better example is FrieslandCampina’s member bonds. “This is a financial instrument that is counted as stockholders’ equity from an accounting point of view. We pay interest on it that’s tax-deductible and it gives our members registered bonds that they can trade with one another. It gives a good return and has been accepted. We have now issued more than a billion, but it seems that the demand is greater than the supply – it’s an extremely successful instrument. Other cooperatives are asking us for advice on how these bonds are issued.”

Corporate treasury is not alone in feeling proud of the honorable mention; the corporation as a whole is, too. Springer sums it up, saying: “Wallet sizing put the ball in our court. We used it to get the signatures we needed for the refinancing. We managed to achieve something that doesn’t happen very often in the current market.” In 2012, FrieslandCampina passed the EUR 10 billion turnover mark. “We’re playing in the Champions League, our CEO is now saying. We’re no longer low-profile; we can’t hide anymore.”

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.”

The WACC is a calculation of the ‘after-tax’ cost of capital where the tax treatment for each capital component is different. In most countries, the cost of debt is tax deductible while the cost of equity isn’t, for hybrids this depends on each case.

Some countries offer beneficial tax opportunities that can result in an increase of operational cash flows or a reduction of the WACC.

This article elaborates on the impact of tax regulation on the WACC and argues that the calculation of the WACC for Belgian financing structures needs to be revised. Furthermore, this article outlines practical strategies for utilizing tax opportunities that can create shareholder value.

Hybrids are financial instruments that combine certain elements of debt and equity. Examples are preferred equity, convertible bonds, subordinated debt and index-linked bonds. For the issuers, hybrid securities can combine the best features of both debt and equity: tax deductibility for coupon payments, reduction in the overall cost of capital, and a strengthening of senior credit ratings.