Return to Case Studies

Streamlining global subsidiaries

Global subsidiaries | HCFX

Scenario

Our client was at a bit of a loss in where to start to get a grip on their treasury.

They have grown considerably and, rightly, allocated their time and resources to growing the business rather than streamlining it.

This has left them with a lot of different stakeholders doing lots of different things and instead of driving in the same direction, which is serving nobody.

They’re UK headquartered and operate as a designer, manufacturer and distributor of retail products.

Manufacturing bases are in two European and two Asian facilities, which they own, and they also have several sales offices across the world.

They’re a well-financed business with a model that works for them, so they expect to continue to expand through acquisition and it’s on us to get their FX fit for purpose.

Acquisition makes sense as a route to grow their business. But buying established businesses means they’re acquiring legacy processes and systems.

So what have they got? They’ve got a growing business. Revenues are strong. They know how to keep growing.

But… The businesses aren’t fully integrated. Individuals are ‘always doing what they’ve always done’

They can see the opportunity in front of them but need help getting there.

Understanding

It took us a while to get our head around the business and get a deep understanding of the cashflows.

This took a few conversations with the CFO, a few more conversations with the UK treasury team and some follow up with finance functions in the regional business units.

We work best visually, so once we’d drawn a picture of the funds flows from each of the entities to the suppliers, inward cashflows from customers and intercompany transfers, we were able to think through how to go about reducing the amount of noise on the page and optimise what we were left with.

There’s a lot of value in making the most of the ‘natural hedges’ within the group; their European businesses were generating cash in Euros, which meant those Euros could be used within the group, instead of the UK and US businesses having to buy Euros in the market.

Whilst unifying the purchasing process across the group and using the collective trading volumes to achieve more competitive and consistent FX ricing put more cash back in the pockets of the business.

This also gave a lot of visibility at head office as to what the individual businesses were committing to.

Lastly, with no set treasury policy in place, there was no formula for bringing further businesses into the process, which we knew was going to be key given their strategy, so it made sense to document the policy.

We set out pre-defined trading limits and counterparties within the policy, so new finance teams had a how-to guide and the necessary support to hit the ground running.

Proposal

Hamilton Court proposed a ‘central treasury function’ that each of the business units can contribute to.

In practice this means that each business can submit its cashflow forecasts, these can be combined with the other forecasts from the group companies and the net requirements of everyone can be catered for.

Whenever the word ‘forecast’ is brought up, it’s often swiftly followed by questions such as ‘how reliable are they?’ and ‘what do we do if they’re wrong?’

The hedging policy is that 90% of forecasts are hedged for the month ahead and that future months are also hedged on a diminishing basis – 2 months out is hedged at 80%, 3 months at 70% etc.

Never hedging to the full required amount means that we have created space for human error in the forecasts and, if there is an over-commitment, we can easily manage it.

Also, work that we did earlier in the exercise, to clear up the noise in the diagram we’d drawn meant that we’d be able to reduce the group’s currency purchasing requirement by about 30%, which in turn reduced trading costs and improved efficiency.

Implementation

Having been involved with the initial consultancy, a lot of the group companies were happy to move to a more streamlined and prescriptive approach.

Thereafter it was just a case of agreeing (read: arm-wrestling) over implementation times – We settled on three months.

This gave time enough for any old habits to fade away but a short enough window that momentum for the change was maintained.

As the group has acquired more companies, we still use the three-month integration timeline, as we know it works and also learned how best to get this done, so it generally takes less time than this.

Evaluation

Measuring success shouldn’t only be about the numbers, but about the teams that use the process and the invaluable feedback that they provide.

Knowing that change isn’t always easy and isn’t necessarily embraced by everyone, so we set monthly meetings for the first six months and ironed out any process and authorisation niggles that we found along the way.

Now we have two meetings quarterly.

One meeting is with the finance teams that we work with, where we get to learn about process and how they’re finding the situation. We also get a chance to get on top of any forecasting anomalies ahead of our second meeting:

This one is with the CFO and head of treasury, which is the quantitative review.

Outcome

Asking dumb questions, we find, often gets us the best answers – and we asked a lot of dumb questions to get to the bottom of all this.

But taking the time at the beginning meant that we were able to move swiftly, efficiently and with as little inconvenience as possible when it came to putting the solution into place.

We’ve now got a robust solution that can grow with the business and, because we collaborate with everybody, we’ve inadvertently created a great communication network within the group.

With a centralised treasury, FX reporting on gains and losses are taken at group level and, as a happy accident, we’ve lowered audit costs amongst the groups, as there are less positions to value at year end and only one entity holding these positions.

The client has had to invest their time for us to fully understand their business, but we can measure this time in hours for a solution that will save them hundreds of thousands of pounds a year. Furthermore, we’ve added a valuable tool to their acquisition planning, which means they can get a business bought and embedded quicker than ever before.

Ready to talk FX?

Get in touch with one of our friendly and knowledgeable experts to see how FX strategy can drive commercial impact in your business.

Contáctanos

Casos de Estudio

Find out how we have helped our clients optimise their FX cashflow requirements.

Encuentra más información con relación inteligentes en divisas
Contáctanos