About dormakaba:
The merger between Dorma Group of Germany, and Kaba Group of Switzerland produced a global company operating in the market for security and access solutions. With strong brands such as Dorma and Kaba in its portfolio, dormakaba Group offers its customers products, solutions and services for access to buildings and rooms from a single source. dormakaba Group is active in over 130 countries and has a presence in all relevant markets, through production sites and/or distribution and service offices, as well as through collaborations with local partners. Both companies have a long tradition of innovation and engineering skills. On the way to its strategic objective of innovation leadership within the industry, dormakaba Group links customer requirements to technological trends and continuously develops state-of-the-art solutions that create added value for customers and users.

Treasury Profile

ADaily Cash Management

BCash Pooling

CPayment Processing

DPayment on Behalf of

ECollection on Behalf of

FSWIFT

GeBAM

HLiquidity Planning

IContract Management for Interest, Currencies

JManagement of Commodities

KTrade Finance Contracts

LCapital Markets

MRegulatory Requirements

NGeneral Risk Management

OTreasury Accounting

PStandard / Individualized Reporting

QNetting & Reconciliation

RInsurance

SMergers & Acquisitions

TInvestor Relations

 

The multidimensional nature of the merged company is reflected in dormakaba’s treasury. When Dorma and Kaba merged, the aim was to successfully combine the best of both worlds, and to evaluate state-of-the-art solutions to make sure systems and processes would live up to the standards of the new business. While the head of the treasury department sits in Rümlang in Switzerland, most treasury operations are run from Ennepetal in Germany. The latter office is responsible for project business, front office and middle office, reporting as well as monitoring compliance, audits, and ensuring dual approval is upheld at all stages. They also make sure the company is EMIR-compliant.

This setup has its roots in the companies’ history: the former Kaba’s treasury in Switzerland was a relatively new and independent department that was still in the process of being established. Thorsten Schmidt and the former Dorma on the other hand had started introducing clear structures and centralizing processes over a decade ago. Worldwide cash management, centralized FX risk management, the corresponding FX hedging as well as a monthly, structured netting process had been in place for years. Kaba had been using a cross-border EUR cash pool to centralize liquidity as well as a strategic, syndicated credit facility to finance growth. Conversely, this was not a priority for Dorma thanks to liquidity not being an issue. Instead of setting up a dedicated treasury team in Switzerland for responsibilities not previously covered (which would have meant establishing a “dual structure”), the merger was an opportunity to divide up tasks.

“One of the most important treasury responsibilities is to ensure the solvency of the business, that means making sure there is always enough liquidity. We’re also responsible for monitoring and controlling any financial risks,” is how Thorsten Schmidt, Deputy Vice President Group Treasury, describes his job profile.

Roman Klass, Vice President Group Treasury, adds, “Treasury is everything that accounting and controlling is not. We’re an independent business unit and report directly to the CFO. This puts us on the same level as controlling, accounting as well as tax and investor relations. What is unusual is that we’re also responsible for internal and external dividend management.”

The merger: the best of both worlds

One of the first key tasks following the merger was (and still is) to combine two very differently structured groups to form one homogenous unit. Top of the agenda are joining systems, cash pools, group-wide netting and financial planning. Efficiency and consolidation are required to enable the same team to manage a considerably larger organization. The former companies had very different setups: Kaba comprised a number of separate, strong and independently operating units before introducing divisional organization and increasingly centralizing the finance section starting in 2012. The focus is now on a globally standardized structure. Payment terms and conditions for intercompany trade, for example, used to be agreed individually at Kaba. This is set to change, and existing routines are being replaced with a structured and group-wide standardized intercompany netting process. This is a particular challenge, as Kaba group companies were used to a higher degree of autonomy. Dorma on the other hand had standardized intercompany settlement years ago, and this standard is now being established group-wide at dormakaba.

Making the most of standardization and freeing capacities

The very different degrees of autonomy in the various group companies have given rise to standardization efforts, but this is not the only major change. Treasury in particular is also driving automation to allow the relatively small team of five to free capacities and concentrate on the main treasury tasks. The aim is to enable the team to automate recurring tasks or to complete them with a few clicks in the system, leaving more time for analysis, planning and structuring. And we shouldn’t forget that the merger of two corporations of roughly the same size is a particular challenge in itself.

“Combining two ‘contenders in the same weightclass’ is entirely different from a takeover. It presents very specific challenges to the ‘corporate organism.’ The treasury team is very proud that we have made considerable progress and that combining the two departments has been so successful,” Roman Klass tells us.

Reducing the complexity of global operations

Some stages of the standardization and automation process have been successfully completed, others are yet to come. The aim is to consolidate and combine the over 190 entities with more than 16,000 employees down to 120 companies. This will go a long way in reducing complexity, but 120 entities is still a sizeable figure. dormakaba has group companies in over 50 countries and cooperations with local partners in more than 80 countries. For the front office, this means dealing with many FX balances when it comes to cash management. The most important foreign currencies are EUR, USD and GBP, yet the monthly netting runs cover cash flows in a total of 30 currencies. FX risk plays an important role within the framework of risk management. dormakaba makes sure that intercompany invoices from factories to group companies are in the same currency that the customer will use to pay, guaranteeing that sales companies’ currency positions balance out and risks are hedged naturally.

Roman Klass explains, “Sometimes, large hotel chains in the Middle East or Asia want to be invoiced in USD. The supplying factory then also invoices the companies in Dubai and Singapore in USD. This reduces FX risk in the sales companies and limits it to a USD risk position which can be hedged centrally.”

“Malaysia, Singapore and China account for a substantial part of our production, and products from there are sold worldwide. This changes nothing about the fact that we ultimately aim for relatively balanced positions across all currencies. Overall, we might be long in USD or EUR while we tend to be more short in our corporate currency CHF,” adds Thorsten Schmidt.

Managing FX risk group-wide

Within the framework of group-wide netting and the corresponding risk management, the responsible unit at headquarters also deals with FX issues arising from intercompany trade. Around 130 entities are currently integrated in the process, and every year well over 100,000 invoices are reconciled and settled. The process covers an estimated volume of CHF 1 billion that is reconciled and paid internally. dormakaba’s netting process follows the “principle of conversion,” i.e. a company’s payments in foreign currency are always converted and processed in local currency. The only exception are companies whose revenue in a foreign currency exceeds 10% of local net sales. In these cases, foreign currency accounts with local account-holding branches of commercial banks are set up and positions are settled in the additional functional currencies.

“It is by no means only netting that gives rise to FX risk,” explains Roman Klass. “We also have structured liquidity planning where we not only plan cash flows and draw conclusions for group financing but also identify FX risks. We aim to reconcile cash flows and hedging deals to work out Cash Flow at Risk (Value at Risk). Our risk budget target number is 5% of EBITDA.”

Thorsten Schmidt adds, “We make sure that hedging instruments for the first half of the business year don’t exceed the business year, and we never exceed the twelve month threshold. Intercompany loans in foreign currency usually entail a commitment period of several years and are hedged on a rolling, quarterly basis by means of FX swaps.”

Consolidating bank accounts and banking relationships

Optimizing dormakaba’s treasury setup also means reconsidering the more than 100 different banking relationships with over 800 current accounts.

“The increasing digitization and the corresponding changes to the banking landscape and banking business have a direct impact on treasury. Never has it been more important to have a state-of-the-art treasury setup and be prepared for different scenarios. We even need to consider that banks could disappear in ten years’ time. No one can estimate just how disruptive current trends are going to be,” says Roman Klass.

Banking relationships need to be managed centrally. Wherever possible, dormakaba has accounts with one of their main banks anywhere in the world. This measure underpins the payment standardization process by enabling faster integration of group companies into a centralized solution. The fewer banking relationships there are group-wide, the fewer formats and interfaces need to be taken into consideration, and the more efficient the management of cash flows is. Cash pools in USD and EUR are also important elements of efficient cash management. The increased volume that comes with the merger suggests that respective volumes will soon be reached in other currencies, indicating the introduction of additional cash pools.

“For us, banks are important financial intermediaries. As a group, we’re currently not in a position to conduct our business without banks. Conversely, we do notice that the banking sector is undergoing fundamental changes. With other payment systems and concepts springing up, why not use them? The business of processing payments has become difficult, and who wants to keep offering unprofitable services? So if banks are going to withdraw, we will find alternatives. For now, trade finance is a different story. Here, we still rely on banks – and the banks operate in a relatively stable environment,” Roman Klass tells us.

Thorsten Schmidt adds, “FX management is another field where we need the banks as counterparties. Someone needs to be on the other end of a hedge.”

The SWIFT connection and the daily collection of account statements (currently via two additional financial intermediaries) provide a sound overview of the many accounts worldwide as well as liquidity. Nevertheless, dormakaba’s Group Treasury strives to leverage yet more potential by means of process integration and account consolidation. Roman Klass outlines the plans for the future as follows:

“We aim to use one system, not just for managing the current cash position but also for the entire planning process and the approval of as many payments as possible group-wide. Germany and Switzerland have been standardized, and using SWIFT will allow us to integrate the entire dormakaba Group, provided we can implement this with reasonable efforts and at a reasonable cost. This will also have an impact on the number of tokens and systems for payments – we will consolidate down to one system.”

The next months at dormakaba will be fully dedicated to integration efforts. Thorsten Schmidt is excited about the challenges coming their way, “Issues in connection with the merger continue to keep us busy. For me personally, adjusting the financing is a completely new topic, while establishing a standardized system landscape is something I’m more familiar with.”

A standardized treasury system is a key supporting factor for dormakaba’s treasury, in particular when it comes to the consolidation of information from across the group.

“It is very important to us to have only one system that makes all information available. Group-wide, we have over 42 ERP systems without a data warehouse. We could never perform treasury and risk management at the level we’ve set ourselves without a global TMS and risk management,” says Roman Klass.

Group-wide standardization and automation have freed up time for dormakaba to analyze existing business processes and tasks, allowing treasury to advise group companies. They’re heavily investing in process definition and rollout – both in terms of time and effort. To Thorsten Schmidt and Roman Klass, initial success on the way to group-wide standardization is proof that the dormakaba maxim “The best for the new” is also treasury’s key to a successful merger.

 

The automation of standard processes is our way of freeing up time, allowing us to advise the group companies.

Roman Klass | Vice President Group Treasury, dormakaba

 

We want to be a trusted partner. dormakaba stands for: trusted partner for smart & secure access solutions. And we, the treasury team, want to be a ‘trusted partner for smart & secure treasury solutions.’

Thorsten Schmidt | Deputy Vice President Group Treasury, dormakaba