About TRUMPF:
TRUMPF, based in Ditzingen (Germany), is the very model of the modern German high tech company: globally active, yet steeped in tradition and rooted in their region. The group is one of the global players in its industry and provides production solutions in the machine tool, laser, and electronics sectors. TRUMPF’s sheet metal working machine tools and high power lasers are used for cutting, forming, bending and even laser welding all around the world. The company was founded in 1923 and to this day continues to be an independent and innovative family-owned business. What started with an electric sheet metal cutter many years ago has grown into a group comprising 70 entities in 30 countries. There’s a great focus on global operations as TRUMPF produces worldwide: in China, Germany, France, the UK, Italy, Japan, Mexico, Austria, Poland, Switzerland, the Czech Republic and the US. The group employs over 11,000 people and has a turnover of EUR 2.8 billion (as of 30 June 2016).

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 global nature of TRUMPF’s core business operations has a particular impact on the treasury. Production is spread around the globe: while the ten production sites in Germany play a particularly important role, the plants in Switzerland, Austria, France, the UK, the Czech Republic or Italy (where TRUMPF has recently started producing additive manufacturing machines for 3D printing) are no less important. There are even two locations in the US (in Farmington, CT and close to Princeton, NJ) where TRUMPF has production plants supplied with primary products from Mexico. This is why to Stephen Schmid, the election of Donald Trump as US President has raised some questions. How will the new president’s stance on free trade between Mexico and the US impact TRUMPF’s supply streams? What about the financial issues that go along with them in the medium term? For now, no one has the answer to these questions, but it is something the treasury team in Ditzingen is preoccupied with. This also shows how much business depends on political framework conditions, and just how complex this makes international operations. In addition to Europe and North America, TRUMPF also has several production sites in China. The products manufactured there are primarily destined for the domestic market. Being active in China has put cash management there on the agenda, and FX hedging also plays an increasingly important role. Production represents one side of business operations, selling machines and lasers makes up the rest. Around half of the export specialist’s turnover is generated in Germany and the EU, and the other half outside of the EU. In these regions, TRUMPF not only caters to the markets where production is located (for example North America) but also to countries such as South Korea, Singapore, Japan, India, Indonesia or Thailand.

Worldwide hedging and cash pooling

Despite the diversity of the countries where products are sold, we can identify a “Big Five” of currencies that are pivotal: USD, GBP, JPY, CHF, and – TRUMPF-specific – PLN. Treasury’s aim is to relieve the group companies of any exposures as much as possible and to transfer risks to headquarters. Risks are hedged with banks (ratio of 70-80%) by means of standard hedging instruments. Foreign currency regulations for some currencies make it impossible to transfer risks to the holding company. In these cases, national subsidiaries treat these entities along the same lines, and hedging is done locally. Likewise, group companies in, for example, Brazil, South Korea or Russia report all outstanding and closed positions, so treasury can rest assured that these countries also comply with central risk management guidelines. Central treasury is not only responsible for hedging FX risks but also for funding subsidiaries as well as their liquidity position. The group has established several cash pools, most importantly in EUR. Fairly unusual is TRUMPF’s Onshore Renminbi (CNY) cash pool in China that integrates five different entities, even located in different Chinese regions. Structures like these illustrate that TRUMPF doesn’t limit itself to common standards but thinks outside of the box to optimize liquidity management.

Efficient liquidity management in light of negative interest rates

These efforts also extend to optimizing the way in which liquidity is deployed overall. This is a top priority and of particular concern to Stephen Schmid just now. “These days, solid liquidity suddenly entails fees, negative interest rates – we’ve never seen anything like it,” he explains. The group’s cash reserves are generally fairly high, and TRUMPF needs to find ways of putting these funds to good use – something that has become particularly important in times of negative interest rates. The TRUMPF treasury team defines itself as an “in-house custodian” in the traditional sense. Ensuring the group’s ability to pay is their top priority, and during the financial crisis of 2008, they were really put to the test. This resulted in a restructuring of the financing setup. Back then, short-term loans on an until further notice basis were commonplace. By now, TRUMPF has switched to longer-term refinancing. This ensures that cash reserves are always sufficient to guarantee that the group can respond to sales fluctuations or fluctuations in connection with acquisitions, even at short notice. In addition, the treasury had arranged a US private placement (USPP) before the crisis. But now these very cash reserves have become an additional challenge.

Continued trust from banks and investors – even in times of crisis

TRUMPF’s lenders stayed calm during the crisis-ridden years that hit the high-tech sector hard. The group maintained a relationship based on trust with USPP investors and all main banks. These times made TRUMPF particularly appreciate their stable banking relationships. Even when operations slumped 40% over night and business fell from EUR 2.1 billion to EUR 1.4 billion, the financing partners continued to place their trust in TRUMPF. The downturn started in December 2008, but as early as January 2009 treasury was back on track and able to organize liquidity management in a way that inspired confidence in the future. The turnover amounting to EUR 2.8 billion recorded in June 2016 is proof that these measures have paid off, that TRUMPF was able to beat the sales slump quickly, and that treasury helped the group come out of the crisis without any lasting damage. Today, the treasury is faced with the task of holding enough cash and keeping associated costs in check. Loan liabilities are reduced as much as possible; credit lines have been agreed as a fall-back within the framework of a syndicated credit facility; pension funds are partially outsourced, and some of the cash is invested long term. In less than ten years, liquidity management has seen a “complete makeover” from liability management to asset management.

Be prepared for everything

Having lived through powerful and extensive experiences – both good and bad – creates stability and enables you to be relaxed about the challenges of the future. The TRUMPF treasury team expects market volatility to become even more pronounced and is prepared for a stricter regulation of trade flows, and for embargo screening to become an everyday task. Similar scenarios, such as the Swiss Central Bank abandoning its EUR/CHF exchange rate control, or rate fluctuations following the UK’s vote to leave the European Union, are likely to reoccur in the future. A further increase in financial crime is another issue TRUMPF aims to be prepared for. The group has started changing payment authorization workflows in the last few years, and this has enabled them to successfully fend off “Fake President” frauds. Process risk management is becoming more and more important, and TRUMPF responds to changes in the banking sector, which is also undergoing structural changes. This requires treasury to check credit ratings more closely to secure investments and to ensure credit lines are available when needed. “We need to organize ourselves in a way where we’re not dependent on banks,” Stephen Schmid sums up the target. “Of course we need banks to process payments, to issue guarantees, or as counterparties in risk management. But many institutions are withdrawing from a number of traditional disciplines. For us, this means that we need to always be able to rethink our position and find a suitable setup. This includes the appropriate systems and technology,” he adds.

German engineering: clear roles and processes

It is almost inconceivable how anyone could ever cope with this level of tasks, responsibility, and processes with comparable capacities, and without adequate technological support. Nearly 20 years ago, Stephen Schmid was put in charge of some treasury tasks for the holding company in addition to his accounting responsibilities. It wasn’t until almost a decade later that a dedicated treasury department with 1.5 employees was created. Today, the treasury team consists of four people, supported by local office staff. The team works closely with the hubs in Singapore and the US to put their know-how to the group’s advantage. The setup of the four-person treasury team is based on a well-defined approach: the front office takes care of trading with banks; the middle office is in charge of the internal control system, controlling tasks and reporting; and the back office is responsible for accounting in the treasury department. The whole department is based in the holding company and is headed by Stephen Schmid. The team reports directly to the (Group) CFO. System support and this separation of duties simplify the work considerably.

TMS process integration means sharing information

Again, the financial crisis was the real test of how well processes and technology were working, when treasury needed to be able to provide information at any time and extensively. It was important to integrate several processes in the treasury system to achieve a group-wide, comprehensive overview.

“I witnessed the early days of electronic banking, where payments were captured by means of on-screen text, not to mention approval. Today, I can approve payments on my mobile phone if I want to. This is a huge development and has made our lives considerably easier,” Stephen Schmid comments. The TMS covers all 150 bank accounts with the over 100 banks the group works with. It also includes all internal and external contacts. Increased visibility and shared information group-wide have also boosted treasury’s status internally. Stephen Schmid is more than TRUMPF’s custodian – “Mr. Dollar” as his colleagues like to call him. Together with the CFO, he’s also the one who makes the group crisis-proof. The treasury department has been through thick and thin with the group and embodies the values and the image of a solid German, globally-operating, medium-sized business, where difficult times are overcome with innovative and flexible solutions of the highest professional standards.

Aside: “Let’s found a bank!”

TRUMPF not only offers high-tech solutions but also attractive financial services for customers, aimed at underpinning sales activities. Buyers include both large corporations and SMEs which use TRUMPF machines for their core business operations. For them, financing this technology is an important issue. To this end, TRUMPF has established TRUMPF Financial Services GmbH, clearly separated from the treasury department and acting independently. This is not merely a “simple” subsidiary but has a specific setup in line with the business model, including its own banking license. The notion of “Let’s found a bank,” first entertained in 2011, has long become a reality and an integral part of the group’s sales financing. Up to 15% of revenues in Germany and over 30% outside of the core market are achieved with the help of TRUMPF Financial Services GmbH. Today, there are even some local “bank” branches in other EU countries, and the product portfolio has been extended. TRUMPF’s service package includes leasing contracts and hire purchases as well as loans and promotional loans. Moreover, the bank is tasked with generating deposits, something the 5,000 employees in Germany have responded to very positively and that is widely taken up. 25 bank employees manage the sales of financial services and take care of administration and risk management in this context. In addition, TRUMPF has a dedicated leasing company in Switzerland that intervenes in “difficult” countries, such as Uzbekistan or Brazil, if the bank is unable to place their own services there. 

 

The system is what brought us closer together during the financial crisis, and what showed us how important the sharing of information is for everyone.

Stephen Schmid | Head of Treasury & Insurance, TRUMPF