Pre- and Post-Crisis Cash Management Priorities for Cash Management Priorities for Porsche

by Heimo Tiefenböck, Cash Manager, Porsche Holding GmbH (Austrian Porsche-Group)

There were several reasons why co-operation with Porsche for implementing cash  pooling solutions  has been very successful in the past. Some of these include our ability to create tailor-made solutions for corporate customers, UniCredit’s strong presence in Central and Eastern Europe and our depth of knowledge and expertise in cash management.

In the future, we are looking forward to implementing a new electronic banking solution with Porsche. We are very confident that ‘NEW eBANKING’ together with SWIFTNet Corporate Access will be instrumental in satisfying the requirements of Porsche Corporate Finance.
 

Angelika Ertl, International Cash Management Sales, UniCredit

Porsche has a central treasury department divided between Salzburg (the company’s headquarters) and Zürich. We have a centralised approach to liquidity, bringing together cash from across the business so that treasury can make investment and funding decisions on behalf of the group. In contrast, we manage payments and accounting locally, with wholesalers, retailers and finance branches producing their own accounts at branch level, and maintaining their own bank accounts within a central framework established by group treasury.

In this environment, we needed to find automated solutions to access liquidity, which we achieve by pooling our liquidity through a physical (zero balancing) cash pool with UniCredit, one of our core banking partners. This means that we can benefit from the advantages of a local approach to payments whilst managing liquidity on a net basis across the group, and ensuring that we have a complete picture of our global cash.

Dealing with the crisis

As we are a key player in the European automotive industry, the financial crisis had a significant impact on Porsche. Not only did we have to consider the implications of declining revenues, but our cash management structures were also under pressure. For example, we are active in Central and Eastern Europe, and to facilitate cash pooling, we had intraday and overnight limits on our master accounts. When the crisis first struck, our banks sought to reduce these limits as far as possible. While our average limit utilisation is well under our total limit, we needed the extra limit as a buffer to cover days with large volumes of payments.

A related impact of the crisis was that our refinancing needs reduced dramatically as a result of de-stocking and  our non-investment strategy; from a cash management perspective, we still needed intraday limits. While we agreed to reductions in some limits where it was feasible to do so, we had to insist on maintaining them in most cases. This put pressure on some relationships, as it was an essential requirement for future co-operation in payment services, and we changed one of our banking partners as a result.

Within treasury, we recognised that having a comprehensive view of liquidity and the ability to access it easily was an essential requirement. For example, while cash flow forecasting had not been a significant priority before the crisis, it became more important. With a greater focus on liquidity, we looked at our activities in Central and Eastern Europe to ensure that we were centralising cash in the best way possible. This is particularly difficult as regulations can differ significantly between countries. In Poland, Slovenia, Hungary, Romania, the Czech Republic and Slovakia, we already had zero balancing arrangements in place. In countries such as Ukraine, however, we were not able to implement zero balancing as legal restrictions prevent cash being moved in and out of the country easily. We therefore needed to take organisational steps to make use of cash within the country, such as paying down inter company debt. We also had high stock levels in Ukraine, having launched the business there only a year before the crisis hit. Therefore, we needed to find solutions for refinancing this stock in the most efficient way.

In addition, we found that tax authorities in several countries, particularly in Eastern Europe, were scrutinising transfer pricing and refused to accept documentation that we had set up in the past to prove that our inter company interest rates had been set at market levels. Some of these demands were impossible to fulfil and the requirements were significantly different in each country. This issue is still subject to an ongoing discussion. At times, it appears that the only way to prove that we establish arm’s length internal pricing is to draw down under small external credit lines under local conditions but even then, this may not be sufficient for some authorities. [[[PAGE]]]

Seeking standardisation

In order to achieve the level of cash and liquidity overview that we were seeking, we wanted to achieve greater standardisation in the way that we communicated across banks and across regions and reduce the number of electronic banking systems that were in place.

This had two key implications: firstly, the need to concentrate cash into a smaller number of banks; secondly, the need to standardise the way that we communicate with our counterparty banks. In Germany and Eastern Europe, for example, we use Multicash for banking connectivity, but this cannot be rolled out more widely and will not be supported in the future. We will therefore take advantage of UniCredit’s ‘NEW eBANKING’ software which provides multibanking capabilities. In addition, this tool supports SWIFT connectivity for corporates and enables this capability to be implemented quite quickly and economically, which we are strongly considering for the future.

Ambitions for the future

Having implemented an overlay zero balancing structure with UniCredit Group in EUR across Germany, Austria, Italy, Slovenia and Hungary during 2009, we are now looking to supplement this with USD pooling in Hungary. Our business in Ukraine is typically USD-based, and bearing in mind the difficulties of imports and exports in the country, we decided to manage orders from Ukraine using Hungarian stocks. Therefore cars are ordered in Ukraine and refinanced by the Hungarian importer before being exported to Ukraine. This process will need to be automated, for which we are using a tailor-made solution provided by UniCredit based on cross-border USD cash pooling between Hungary and Germany.

We will also be moving further forward with our standardisation project. We have already implemented Misys for treasury confirmations, which is integrated with our TMS. We are now adding 360T for electronic dealing, which again will be integrated closely into our overall treasury systems infrastructure. SWIFT connectivity is likely to be the next step in this initiative.

SEPA migration is a project we will also need to undertake in the near future. Initially, this is likely to be on a selective basis, taking advantage of SEPA payment instruments where they offer the greatest benefit. For example, in Greece, it is generally very expensive to make payments. We could leverage SEPA by making payments from outside Greece using SEPA Credit Transfers, so the account in Greece is only used for incoming payments. Furthermore, these accounts in Greece will be included in an existing zero-balancing structure. We will also be using SEPA as a catalyst for reviewing our banking operations in certain countries, such as Greece where our current bank is closing its operations.

In addition to cash management, IFRS, including hedge accounting, will be a priority for Porsche’s treasury. We are about to implement IFRS across the group, which will be a significant undertaking. We use SunGard AvantGard as our treasury management system (TMS) which is interfaced with SAP. It is also our preference to adopt a fully integrated approach to hedge accounting; nevertheless we have to review various options. In particular, we need to decide how to manage our loan and lease portfolio which holds hundreds of thousands of individual contracts. This is held in a separate system and we would not wish to integrate individual contracts into our TMS, so we would need to be consolidated and interfaced on a portfolio basis.[[[PAGE]]]

Closing thoughts

While the crisis did not result in Porsche fundamentally changing the way we manage our cash and treasury management operations, it forced us to refine our focus on regions where cash flow centralisation can be complex, such as Central and Eastern Europe, and elevated liquidity management as a primary objective in treasury. This has had various implications for our business, including developing our cash flow forecasting process, and standardising/ streamlining the way that we communicate with our banking partners to ensure that we have complete, timely and consistent information on which to base our liquidity decisions.