Transformation of global Treasury Management in Mechanical Engineering

Project: Multi-year collaboration on the Transformation of Treasury Processes | Implementation of SAP Treasury

Tags: Liquidity planning | Cash pooling I FX risk strategy I Hedge accounting | Cost reduction I Preparation for SAP Treasury

A Swiss global market leader in the manufacture of spinning machines (turnover CHF 1 billion) had lost a full-time member of its two-person treasury management team due to redundancy. Our interim manager was hired to maintain day-to-day treasury management operations and overcome individual challenges. The troubleshooter assignment planned for a few months developed into a multi-year collaboration with various projects to transform the treasury processes, including the introduction of SAP Treasury.

Numerous challenges in Treasury Management identified

When we took on the mandate, it quickly became clear that the company was facing numerous procedural and technical challenges. These included above all:

Trouble shooting in the existing treasury system “Reval / ITS”
Introduction of globally practiced hedge accounting in accordance with the IFRS 9 standard
Expansion of Group netting
Setting up a new cross-border cash pooling system with four pools for EUR, CHF, USD and offshore RMB
Development of a new FX risk strategy and ensuring compliance with the regulatory requirements of EMIR, FATCA, AIA, CRS, MiFid, FinfaG and Dodd Frank
Introduction of a SWIFT for Corporates solution with its own BIC
Setting up a new global payment transaction system
Switch from the Reval treasury system to a comprehensive treasury solution from SAP with the introduction of an in-house banking concept.

The biggest weakness of the current treasury was that the numerous processes were highly fragmented. In order to eliminate these shortcomings, the interim manager first recorded the processes and developed the target image for state-of-the-art treasury management. From this, he derived the roadmap for the necessary changes.

New liquidity planning creates basis for process transformation

The basis of almost all treasury processes is meaningful, direct and currency-sensitive liquidity planning, which should be largely automated. Previously, the company used “Reval” as a liquidity planning tool. However, this proved to be too complicated and inflexible in its design and did not meet all requirements. We therefore introduced a new liquidity planning system with the specialized web software “TIPCO”. Within just six months, we integrated the global companies, all banks, bank accounts, credit lines and working capital-relevant internal accounts in all different currencies into the new planning tool together with the team, which has since been expanded to two full-time employees. With the highly granular data now available, the company was able not only to produce a transparent liquidity forecast but also to analyze external and internal currency risks in summary form, establish the basis for new group netting and centralize group liquidity largely in cross-border cash pools.

Hedge accounting in accordance with IFRS9 reduces the volatility of hedging transactions

In a further sub-project, the Group CFO entrusted Group Treasury with the task of significantly reducing the earnings volatility of hedging transactions. The Group prepares its accounts in accordance with IFRS. This required the introduction of IFRS 9 as the successor to IAS 39 - with all the complex and comprehensive details such as effective tests and audit-proof postings.

For the changeover, we first created an Excel test module in which we modeled the hedge accounting processes in order to find the perfect solution. In doing so, we overcame the challenge of accurately recording the constantly changing underlyings in terms of amount and maturity date and ensuring that the derivatives were recycled. After completing the test phase, he was able to transfer the project to the permanent process.

At this time, Treasury IT was still in a transition phase from Reval and other systems to a uniform SAP standard. Therefore, the hedges and underlyings had to be managed redundantly in two systems at the beginning. The valuation was carried out in Reval and the hedge accounting was calculated in TIPCO. In the end, we transmitted the complex booking records to Group Accounting on a monthly basis using direct booking instructions including explanations. It was obvious that this could not be a situation for eternity.

High decentralized payment transaction costs identified and significantly reduced

As part of the treasury management transformation, we also prepared a detailed analysis of all payments in all currencies at all banks. The result was sobering. Each national company had its own decentralized processes and made payments as it saw fit. This often led to high visible and invisible costs. Visible were the direct bank charges, which were negotiated decentrally (if at all). What remained largely invisible were the sometimes extremely high exchange rate costs when, for example, a payment in USD was triggered from a EUR account.

In order to create transparency and reduce costs, we largely standardized the payment processes with the external specialized provider “Fides Treasury Services”. All possible payments are now standardized via a central hub and equipped with flat rates. This has resulted in a significant increase in payment accuracy, a reduction in decentralized costs and a very high level of transparency for all physical payment flows.

Your own SWIFT identifier brings advantages

SWIFT is the largest global banking communication system. It is open not only to banks, but also to large companies. Membership facilitates payment transactions. In order to be accepted into the SWIFT system, however, considerable preparatory work is required.

As our client incurred high costs, particularly due to recurring know-your-customer processes (KYC processes), the company decided to join the SWIFT system. In a new sub-project, we were entrusted with carrying out the complicated preparatory work for the application for a so-called SWIFT identification code. After 4 months, the company received its SWIFT identification code and is now able to provide the information required by the banks on demand and without further verification.

Digital transformation: Switching the Treasury Management System to SAP TR

Once we had successfully harmonized the treasury processes with the internal teams and external service providers, we were able to tackle the largest sub-project: the migration of the old treasury management system and the new components to SAP TR. In close cooperation with a service provider specializing in such migrations, we succeeded in verifying all individual processes once again and connecting them to SAP Treasury step by step within just nine months.

Company has efficient and cost-effective Treasury Management

After a total of more than five years with a steady stream of new projects, the company now has an efficient and cost-effective treasury management system and reliable liquidity planning worldwide. The savings in treasury management amount to a good CHF 1.5 million per year. With relatively modest project investments, the project delivers an internal rate of return (IRR) of more than 100 percent.

The harmonization of processes and the joint work of numerous stakeholders in the various areas of finance and IT management have also made a significant contribution to improving global teamwork and breaking down the silo mentality of national companies and departments.

The project in brief

Numerous challenges in treasury management identified
New liquidity planning creates basis for process transformation
Hedge accounting in accordance with IFRS 9 reduces the volatility of hedging transactions
High decentralized payment transaction costs identified and significantly reduced
Digital transformation: change of treasury management system to SAP TR
Company has efficient and cost-effective treasury management