Published: February 01, 2010
The past two years have witnessed troubled times in many sectors, with the automotive industry being one of the worst affected. As a supplier to car manufactures, Webasto has seen a dramatic decline in demand resulting from the severe drop in sales across the European Union, USA and Japan. Although there has been state support for some of the major car manufacturers, this has not helped all suppliers. Many have experienced serious liquidity issues as orders are reduced or cancelled. We have seen competitors become insolvent and also Webasto suppliers’ liquidity situation is partly very vulnerable. Inevitably, banks have been nervous about how much support they can give to companies operating in this industry. That was a concern to us with financing due for renewal in 2010.
Webasto had enjoyed international growth over the years with a good number of group companies operating in a fairly independent way in the treasury area. With over 50 subsidiaries globally, it became a business imperative to centralise and co-ordinate financial activities more closely. There was a clear desire to strengthen financial policies, procedures and operational capability of the company; for example, we had no treasury guidelines in place at that time. We also lacked a treasury management system, so it was impossible to achieve an intra month overall liquidity position across the company. There was too little financial interaction across group companies, which made it difficult to co-ordinate a group-wide approach to treasury.
With over 50 subsidiaries globally, it became a business imperative to centralise and coordinate financial activities more closely.
I joined Webasto having had experience in industry-leading treasury departments at companies such as Siemens AG and Nokia Siemens Networks GmbH, so my aim was to bring these experiences to Webasto and develop a treasury department that demonstrated best practices and brought efficiency and control to the company’s financial activities. There were three key elements to our treasury vision: firstly, we wanted to establish treasury as an in-house bank which would provide shared services on behalf of the group; secondly, we wanted to partner more closely with subsidiaries so that we could gain a central view of cash and set a consistent liquidity strategy; finally, we wanted to improve corporate governance by developing best practice policies and procedures.[[[PAGE]]]
We identified a variety of treasury elements that we wanted to improve to achieve these objectives, including transparency; compliance; financial risk management; efficiency; processes; visibility; expertise and centralisation. We put together a ‘master plan’ which laid out tasks from the second quarter of 2008 through to the third quarter of 2009 (fig 1).
However, inevitably during such turbulent times, we found that we had to substitute our original timeline with a more realistic plan (fig 2). There were a variety of obstacles which interrupted our treasury transformation efforts. For example we had to pay more attention to cash and working capital issues with the financial crises developing. We were also having to dedicate more time to our banking partners and relieving their concerns, together with dealing with an acquisition. While it may appear counter-intuitive to complete an acquisition during a time of such turbulence, it sent a positive message to the market about the strength of our ongoing strategy and our future viability.
While these additional tasks were necessary to the business, they resulted in delays in implementing our treasury vision. However, we have still made substantial progress. The first step in the process was to implement a treasury management system. This was particularly difficult due to our very limited resources, but once in place, we decided to align our processes with the system. While many large, complex corporations tend to put in place their processes and then implement a system to automate them, it was more efficient for a smaller firm like Webasto to work within the guidelines of the system. This project is still ongoing, but we have completed much of the set-up and roll-out to the group companies e.g., overview on bank accounts and statements. We have also defined our new treasury guidelines and received approval.
Cash flow forecastingOne of the greatest challenges we had in the past was cash flow forecasting. With a decentralised approach to treasury, we were struggling to put together a reliable, regular and consistent forecast at headquarters level, which requires input from many businesses and departments. We were using spreadsheets to create and combine the data, and we were aware of serious shortcomings in the process for collating information. The challenge was not simply technology-related: we also needed to convince people internally that the forecasting process had value for the business. We formed a project team comprising business unit representatives, purchasing, financial control and sales to involve all of the different contributors. To develop a forecast initially on headquarters level, we have taken data from our ERP, such as outstanding payables and receivables over a four-week period. While this has helped to develop a more systematic approach to forecasting, it is inevitably difficult to predict cash inflows, particularly as deductions may be made by customers. This creates both reconciliation and forecasting issues as the amount received may differ from the invoice value, and advices often follow after payment. This problem is still unresolved, and we anticipate further developments in our forecasting process.
Our banks have inevitably been nervous over this period; however, they were reassured by the appointment of a professional treasurer before the crisis developed. During the crisis, the frequency of bank meetings increased as our banks wanted regular updates on our budget outlook. In January-February 2009, the outlook was very poor. However, as a good part of our banks were German market focused like Landesbanks, we have received considerable support as a local company with mostly long-term relationships.[[[PAGE]]]
Over that period, we decided to look at refinancing, including sources such as the European Investment Bank to do so. We were successful in achieving this, with financing concluded in August 2009, still within the midst of the crisis. With that Webasto was the first automotive supplier which got refinanced since the beginning of the crisis.
When we started our treasury transformation project, we had no centralised FX hedging in place. But we are currently rolling out our treasury management system to business units so we will have a smooth process for inter company dealing in place. With a small treasury team, the roll-out of system capabilities to subsidiaries has been vital to our centralisation efforts. To make sure the roll-out is going to be successful, we ran kick-off meetings in each region. In addition training was held using web and phone conferences, to reduce travel costs.
During a period of exceptional turbulence and industry vulnerability, we have had substantial achievements both in running our treasury operations and in securing the future viability of the business. In addition to our tangible achievements, we have created far greater awareness of the importance of transparency of information and compliance. Consequently, we have far greater visibility of our risks, so we are in a better position to manage them effectively.
Treasury is now established as a partner to the business units, not just as a remote head office department. There is still more progress to be made in this area, but we have taken important steps forward. One of our aims was to revise our netting process, which we have not yet had time to put in place, but this will happen in due course. We will also be continuing with our centralisation initiatives and refining our use of our treasury management system.
To date, lots of our work has been project-driven. As economic conditions improve and we move further towards achieving our transformation objectives, we will develop more of a regular operational routine, both within the department and in our activities with our internal business partners across Webasto. 2010 will be a year of continuing to ‘spread the word’ about what treasury can do, and how we can help.
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