Published: August 01, 2009
by Thomas Clemens, Head of Cash and Risk Management, and Heike Nine, Head of Trade Finance Operations, REWE GroupAt REWE Group, we have embarked on a variety of cash and trade finance initiatives in recent months, with a view to optimising trade finance, cash management and liquidity planning and integrating financial information more effectively. Around 18 months ago, we restructured our finance department, which includes both treasury and trade finance, and put in place a new team. Since then, working with SEB, we have made a number of substantial achievements to enhance our internal and external processes.
We decided to work with SEB as our banking partner for a variety of reasons. SEB is one of the partner banks in our syndicated lending facility, which comprises 28 banks, but we found that not every bank presented itself in as convincing a way as SEB. Cost is inevitably an issue when selecting a banking partner and SEB was highly competitive on price. More importantly, however, the team has brought significant problem-solving skills and specialist knowledge to support our trade finance requirements. For example, they have been quick to understand our challenges and provide solutions, and have shown significant commitment to our business. We have found that SEB asks the right questions, suggests detailed solutions and delivers what they commit to.
Letters of Credit (LCs) are a major part of our business, and our needs in this area can be quite complex. We work with a German importer which delivers on large orders for electronic materials including working with distributors in the Far East. As a smaller firm, the importer has less financial flexibility than REWE, so we wanted to support the company with an import finance arrangement but without adding substantial risk to our business by providing lending or guarantees. This was a complex arrangement and we needed significant support in putting together a structure and contract appropriate to each jurisdiction to facilitate the relationship between the importer and distributors. With SEB’s help, we achieved a finely balanced structure, effectively resembling an escrow agreement, which provided greater financial assurance to distributors and enabled the importer to conduct its business more effectively, ultimately benefiting REWE.
In addition to ensuring that we had the right external contractual relationships in place, we wanted to optimise our internal processes to become as efficient as possible and accelerate cash flow. We are seeking to automate and increase the efficiency of every financial process. SEB has been instrumental in this process so far by helping us to address issues at a detailed level rather than simply discussing them at a high level. For example, in our REWE department in Cologne, trade finance documents were sent by post, which slowed our processes and meant that any errors took a long time to resolve. With SEB’s help, we now transmit our documents electronically using scanned images, which is more efficient, cost-effective and enables errors to be remedied quickly.
Another challenge we have addressed is the processing of trade finance contracts which is now electronic. We use Multicash, provided by Omikron Systemhaus GmbH, to create SWIFT messages which we send via eBanking. Only one message type is not yet fully automated but SEB have been quick to provide solutions and this will be resolved imminently. This contrasts with other banks which indicated that this could not be achieved and they were not in a position to amend their systems to support our messaging requirements. [[[PAGE]]]
We perform our cash management centrally. In Germany, we use zero-balancing arrangements, partly automatically with our banks, and partly ourselves using SAP. Our aim is to pool balances on all of our accounts in Germany every day so that we have full control over our total cash. We are intending to introduce cash pooling in the other countries in which we operate, which totals 18 countries across Europe, but there remain a number of legal and taxation challenges with cross border cash pooling. Along with SEB, and the other banks we use for cash management, we have been looking to put in place cross-border solutions but this is a long process which needs to be addressed at a detailed level. We have a finance BV company in the Netherlands which provides financing and liquidity to the Group. At the moment, information is made available weekly to support this process but we are looking to refine this by enabling daily information.
More widely in our finance department, we have sought to enhance our liquidity planning and provide better integration of trade finance into our forecasts. We recently established a new liquidity planning tool, provided by German provider ecofinance, which we have implemented across every company and country within the REWE group. This has been a significant step forward for the business, and we now have far greater visibility of data across the company. As the system is mult-currency, it helps us both in liquidity planning and FX exposure management.
Looking ahead, we are planning to implement a new workflow management tool to manage our import documentation which is currently mostly paper-based. This will enable everyone involved in the trade process to have visibility over the detail and status of documentation. Originally we implemented this system in purchasing, but we are implementing this in treasury too, in order that we know exactly what financing arrangements are required to support the business. As well as having more precise information on trade finance, this system will be a gateway to our liquidity planning tool, so we will be able to see the timing, amount and currency of cash outflows earlier, allowing us to see our trade exposures and plan more effectively. This system will shortly be integrated with SWIFTNet, as SWIFT intend to open up trade finance message types to corporates, which will be a valuable step for REWE, by accelerating the process of sending LCs to SEB.
Another future development will be to implement a new bank communication tool based on SWIFT messaging. This system, which we are currently selecting, will enable centralised bank connectivity across each of our companies/countries, which will need to integrate with SAP and support both our existing processes and internal audit requirements. We intend to go live on this system during Q1, 2010.
As a company, REWE tries to do a little better, every day. We have adopted this thinking in our finance department, and over the past 18 months, we have made substantial improvements to our processes and still have significant plans in place. In all of these efforts, we have been readily and effectively supported by SEB and we look forward to continuing our relationship based on mutual trust, honesty and commitment to practical solutions to the challenges in our business.
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