Optimising Cash Management in a High Performance Organisation
Matthias Brinkschmidt, Head of Cash Management & Treasury Controlling, Linde AG, Binod Patwari, Head of Finance & Control, South and South East Asia, Linde Gas Asia Pte. Ltd and Peter Langshaw, Global Head of Energy, Power, Chemicals, and Mining Sector, Global Transaction Services, Citi
The chemicals sector has focused heavily on cash management, cost control and increased efficiency since the financial crisis to preserve margins and maximise working capital. Over the past year, the sector has experienced a significant recovery, not least due to growing demand from China and emerging markets. The focus on efficiency, control and effective use of cash has stood the industry in good stead to respond to this increased demand, and has enabled companies to invest in expansion and innovation. Furthermore, companies that have focused most on productivity have seen not only a significant growth in sales, but also a leap in profitability.
In 2008, world leading gases and engineering company Linde started to implement a high performance organisation (HPO) across the business, an integrated concept for sustainable process optimisation and increased productivity. This approach has already had a significant, measurable positive impact on the business, with a substantial increase in both sales and profitability. During 2010, the group achieved sales of EUR €12.87bn, an increase of 14.8%, with a 22.6% growth in net profits, largely due to the HPO initiative. The HPO concept remains pivotal to Linde’s culture across all its business functions, including finance and treasury, and also has a considerable influence on the company’s expectations of its business partners. In 2009, Linde mandated Citi as its cash management banking partner in Asia, a relationship which has since been extended to Europe, based on the bank’s ability to complement and contribute to its HPO ambitions.
In the following Q&A, Matthias Brinkschmidt, Head of Cash Management & Treasury Controlling, and Binod Patwari, Head of Finance & Control, South and South East Asia, Linde describe their experiences of implementing a new, enhanced cash management and banking organisation.
What encouraged you to embark on your optimisation project and implement an HPO in treasury?
Although the HPO initiative was initiated at a group level, we recognised its value as a framework for simplification, rationalisation, standardisation, process efficiency and cost control in our cash and treasury management operations. In particular, we realised that we would ultimately be able to address the needs of our internal and external customer base more effectively. Since it was first introduced, the HPO concept has become integral to the DNA of the Linde Group and informs our priorities and decision-making.
Based on the HPO model, in what ways were you seeking to enhance your cash and treasury management framework?
Our project initially started in Asia, where we were conscious that our cash and treasury management strategy had become fragmented. In particular, we had different processes and technology in each country, with multiple bank relationships and a proliferation of bank accounts. In some respects, the origins of this multi-bank, multi-solution model had been the right one for Linde, as gas cannot be transported economically over long distances, so the business is effectively made up of a number of local markets. We also work with a wide spectrum of different customers in a variety of ways, from long-term contracts with large multinationals through to ad hoc sales to smaller businesses and consumers for goods such as gas cylinders and medical gases.
However, we recognised that while we needed to maintain a banking framework that would allow us to satisfy our banking and customer needs in each country, there were some processes, technology and banking synergies that could be achieved. Fee structures and documentation were different for each bank, and we lacked the ability to negotiate economies of scale. With disparate processes, technology and banking providers, we also lacked full visibility and control over cash. While the distinct regulatory conditions that exist in each country, particularly in emerging markets, cause some difficulty in accessing cash, we wanted a clear view of our cash position and funding priorities.