About Wacker Neuson:
You can find Wacker Neuson Group’s diggers, vibrating plates, rammers or loaders on nearly any construction site. Headquartered in Munich, Wacker Neuson is the world’s leading manufacturer of high-quality construction machinery and compact machines. Their diverse product portfolio targets professionals in the construction industry, in horticulture and landscaping, agriculture as well as local authorities and industrial companies. Since 2011, Wacker Neuson has also been producing mini diggers for Caterpillar at their Hörsching plant in Germany. Founded in 1848, the family-owned business now comprises over 50 subsidiaries, more than 140 sales and service companies as well as over 12,000 sales and service partners worldwide. Wacker Neuson has production and development sites in Germany, Austria and Serbia but also the US, Brazil and the Philippines. They have been listed on the German SDAX since 2007.

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

 

It might be down to the industry, but it might also be the character of Wacker Neuson’s treasurer: Thomas A. Woelk comes straight to the point when we begin our interview. He is straightforward and precise, and the same can be said about the group’s treasury. A treasury setup can only work as smoothly as Wacker Neuson’s does if the people behind it have a profound understanding of the group’s core business. Currency management alone represents a treasury challenge in a business of this size and international profile. Wacker Neuson’s treasury needs to ensure that over 30 different currencies are available at exactly the right time and in the right place – at any time and for purchasing, production and sales alike.

Global/regional: a business model made up of both

The sales department is active across the globe – very successfully so from Chile to Russia, from Australia to Canada, and from Scandinavia to South Africa. Primary products, on the other hand, are mainly purchased in markets surrounding production sites. A central purchasing department acquires the goods and they’re delivered to a total of eight production companies, who are in turn invoiced directly by the suppliers. Suppliers usually invoice in local currency, but this is by no means true in all cases. So production units are often confronted with currency management and the corresponding FX risk as early as during the purchasing stage. The end product completed, the production companies sell it to the sales companies via the logistics department. Again, this is normally done in their own currency, in particular in USD and EUR. Production sites such as Brazil, the Philippines and the USA all invoice in USD when it comes to export. Locations such as Germany, Austria and Serbia work with EUR. Wacker Neuson is currently in the process of establishing a production company in China, but it will largely work for the local market and is of little relevance in an FX management context. The sales companies sell the products in the local markets and charge in local currency, shouldering the FX risk from procurement to sales. Based on this business model, Wacker Neuson neither identifies as an export company nor as an import company. They see themselves as a both locally and globally active business with regional production for regional consumption. Treasury’s key challenge in a global currency management context is to establish the foreign currencies that, from a group perspective, are of relevance in connection with sales proceeds and can be used for purchasing.

Natural hedging and FX hedging

The ERP system provides the necessary purchasing information to evaluate this data. This way, the treasury department can control as much as 85-90% of the volume in question. Cash requirements in specific currencies are compared to the current forecast for sales proceeds from group companies. This allows treasury to work out both the volume offset by natural hedging and the remaining exposure that requires hedging. Next to the challenge of hedging, it is mainly potential time lags between incoming and outgoing payments that need to be consolidated. The daily valuation of cash positions in accordance with IFRS regulations necessitates matching cash flows to achieve genuine natural hedging.

From a technological point of view, FX trade is fully supported at Wacker Neuson. Take for example a group company in the UK requiring EUR to offset an internal payable. This request is first submitted to central treasury. They accept the request and trade the amount in question with a bank on a relevant auction platform. Twelve banks are directly invited to bid, regardless of whether or not Wacker Neuson has an account with them. Once rates have been fixed externally and hedging rates have been passed on to the subsidiary in question, Wacker Neuson receives EUR on the respective maturity date and is charged in – for example – GBP. At the same time, internal transfers to the UK subsidiary are automatically initiated via the TMS and settled with the banks via SSIs.

Payments security: a top priority

Currency management is only one of the key issues for Wacker Neuson’s treasury. Among experts, Thomas A. Woelk is known as “Doc Fraud” because reliable, secure payments are his top priority. For example, Wacker Neuson never publishes the signatures of any of their management in external publications to avoid making it that bit easier for potential fraudsters to scan them and forge checks or payment slips. For security reasons, Wacker Neuson generally avoids paper-based payments wherever legally possible. Even in countries that commonly use checks, such as the US, payments are submitted electronically instead. At Wacker Neuson, 90% of group-wide payments are covered by one single platform, giving treasury nearly full control of all outgoing payments in the group. Subsidiaries generally enter payments in their ERP system, then import them into the TMS via an interface, authorize them in line with the signatures on file and then submit them to the bank to be processed. In addition to local technologies, such as EBICS, direct host-to-host connections to banks are used. Wacker Neuson’s direct SWIFT connection is arguably the icing on the cake: they have had their own SWIFT Code since 2014, allowing for identification in the SWIFT Network and communication with banks than cannot easily be connected via a host-to-host connection or EBICS.

Centralized and secure payments

Prior to the centralization of payments, various platforms with different tokens, TANs and password generators were in use at headquarters and in subsidiaries. Authorized signatories were agreed locally with each bank and documented by these banks. Today, Wacker Neuson employs a standardized authorization concept that covers all banks. Signatures are only maintained on the platform, with treasury in charge. This way, they can act quickly if an employee leaves or joins the business. The treasury team is particularly proud of the fact that more payments are processed via the central payment hub than are captured in the standard ERP system. At a global level, “Doc Fraud” has succeeded in achieving more comprehensive coverage with his system approach than had been possible in a centralized ERP landscape.

The degree of standardization that has been achieved for payments is impressive, but getting there was no “walk in the park.” Wacker Neuson is a highly decentralized group and subsidiaries’ decision-making authority in many aspects needed to be dealt with. Extensive lobbying was required to clarify why the services of local banks were no longer required to the same extent as before, and to highlight the advantages of standardization and centralization. To the regret of the treasury team, some potential remains untapped when it comes to subsidiary payments due to for example “government payments” receiving special treatment in some countries. For now, Wacker Neuson has not been able to do away with all paper-based processes. Some supporting documents are still a requirement – a situation even global technologies and connections cannot fully resolve. Nevertheless, Thomas A. Woelk is confident that this too will soon be a thing of the past.

Optimum support for group companies – treasury as an internal service

Despite the scope of their responsi-bilities, the treasury team is only made up of three employees plus Thomas A. Woelk as the head of the department. Together, they provide support on the group’s journey from a volume of EUR 1.1 billion in 2012 to the EUR 2 billion the group is aiming for. The treasury department considers itself the central port of call for any questions pertaining to FX management or refinancing. They’re responsible for the entire banking communication group-wide. Having centralized these responsibilities has allowed group companies to concentrate on their core business. Short of increasing capacities, such a volume can only be managed efficiently with comprehensive system support. This is why the treasury management system takes center stage in everyday business. Both holding company and group companies are to benefit from this setup to the same degree. In addition, treasury takes on more and more responsibilities that used to be the stronghold of the banks. This is reflected in the way the treasury department defines their relationship with banks. They are considered service providers and terrific external partners for particular niche services, people treasury can deal with on an equal footing.

Sales financing is another issue that forms part of the “replacing banks” quest, and this is becoming a more and more interesting topic. In this context, Wacker Neuson has decided to join forces with an external partner instead of setting up their own financing company. A “virtual” joint venture takes on the complete financing process vis-à-vis the end user. The joint venture partners share the generated revenue. Wacker Neuson assumes interest costs for equity investments that would theoretically apply but are not paid within the framework of the virtual joint venture. This amount is deducted from the profit share at the end of the period. This provides treasury access to the full set of financing opportunities without having to apply for licenses (as a bank or leasing company would) or being burdened with the administrative costs.

Thomas A. Woelk is responsible for negotiations with the banks and he is the one in charge of sales financing within the framework of the joint venture. Someone else looks after responsibilities in connection with accounts receivable risk, working closely with the group companies when it comes to customer credit assessments. This allows the group companies to optimize their business without too low or too high a risk in connection with their receivables portfolio. Yet another employee is responsible for cash management and the worldwide cash pools in EUR and USD, the multi-currency notional pool as well as providing advice and support in connection with the TMS. The third team member is in charge of FX trading and the optimization of global payments. He makes sure that ERP systems don’t even make local formats available but list global file formats, such as CGI V2 or V3. These are the designated file formats for submitting files to banks. As a consequence, some local banks cannot be connected in the first place. Thomas A. Woelk’s treasury team has the perfect overview and can take preventative measures to put local payments on the right track from the start.

Once upon a time… there was the “Fake President” trap

Fraud prevention is one of the driving factors behind Thomas A. Woelk’s strive for efficient payments control. He can still vividly remember his own company coming face to face with the “Fake President trap.” On a Friday afternoon, an urgent transfer from an account in the US to an account in the Balkans was processed, wrongly so as it transpired. That Sunday, Thomas A. Woelk literally “spammed” the globally operating bank in Australia in question to somehow stop the transfer. Thanks to the time difference, they could still intervene before the money reached the beneficiary’s account and Wacker Neuson didn’t lose any money. The incident and clues as to the identity of the person behind the fake request led to an investigation and put the issue of fraud prevention even higher on the treasury department’s agenda. It is with good reason that Thomas A. Woelk was dubbed “Doc Fraud.” Wacker Neuson’s treasury team still sees plenty of exciting challenges and potential activities ahead – in general and with view to fraud prevention. Personal communication with colleagues worldwide plays a key role in raising awareness in this context.

 

Raising awareness and making treasury activities transparent will help us make an even bigger contribution to the group’s success. By spearheading campaigns in the treasury landscape and lobbying with associations and the public, we can help get treasury as a discipline the recognition it deserves.

Thomas A. Woelk | Head of Corporate Treasury, Wacker Neuson