The global Journey of a Family Business
About Gebr. Heinemann:
A passion for trade is in their genes: Gebr. Heinemann was founded by brothers Carl and Heinrich Heinemann in 1879 and four generations have developed the business into one of the market leaders in travel retail and distribution. Out of all the global players in the duty-free industry, Gebr. Heinemann is the only one that is still family owned. They’re active on all five continents and employ some 6,000 people, with the owners taking a personal interest in the welfare of these employees. The business is headquartered in Hamburg HafenCity. Gebr. Heinemann’s retail business covers over 300 Heinemann duty-free & travel value shops, franchise boutiques, and concept shops at 78 airports in over 28 countries. Moreover, the company runs border shops and 20 shops on ten cruise ships. More than 1,000 customers in over 100 countries worldwide benefit from Gebr. Heinemann’s distribution and consulting expertise when assorting their brand portfolios, taking into consideration market-specific and regional particularities: airports, airlines, ferries, cruise liners, border and downtown shops, duty-free zones, the military, outfitters of ships, diplomatic missions and crew shops.
Martin Bellin on Gebr. Heinemann: A business that embodies and shares tradition, continuity and momentum
My favorite airport is the one in Hamburg. This is what the settings of my Heinemann shopping app say. Truthfully, I never miss out on a chance to browse one of the shopping “temples” of the globally operating retailer whenever I pass through the airport. It is not just their cosmetics and spirits that continue to impress me but also brand shops, such as Montblanc or Hermès. Always a great way to pass the time until departure! After a long day at a client’s, I’m not always up for immediately plunging back into work. Today has been such a day: Gebr. Heinemann has crossed my path twice. In the morning, I had the opportunity to have a long conversation with Sebastian Marks about the company and the specifics of their treasury. Now I’m on my way back, strolling through the airport shops, taking in the items on display, thinking about the interview. Visiting Gebr. Heinemann is a truly special experience that is hard to describe if you’ve never been there yourself. We were welcomed in the “sacred halls” of the executive board. The Heinrich Heinemann room usually hosts executive management meetings and has seen many important decisions – a grandeur also represented by the top wines on display (including an exclusive 1952 brandy) as well as the cognac selection (not brands I recognize but very well preserved). All of it echoes the long corporate history, combined with the contemporary and modern face of the Hamburg-based family business. Hanseatic tradition, continuity and at the same time the dynamic approach of a truly international business define Gebr. Heinemann – and this is truly noticeable throughout the business, not just in the treasury department.
Sebastian Marks’ ambition is to do more than just accompany international operations. He wants to actively support and shape activities. He’s been responsible for Gebr. Heinemann’s treasury and cash management for over four years now. On one hand, he supports the group companies with any questions that arise in their day-to-day business. On the other hand, new issues come up all the time given the company’s position as one of the most important travel retailers worldwide and the continued global expansion of the business.
The travel retail sector has been growing continuously. This has boosted business for Gebr. Heinemann and allowed them to tap new markets: you can visit Gebr. Heinemann whether you’re in Turkey or Australia. However, the business is not limited to their well-known duty-free and travel value shops in 78 airports. The company also supplies specialist shops at embassies, military facilities, diplomatic missions and on cruise ships.
The treasury team forms part of Gebr. Heinemann’s finance section and reports to divisional management and group management. This echoes the flat hierarchical structure of the business and means that while concepts are deliberated in detail, they can be implemented very quickly.
Gebr. Heinemann is still family-owned and advocates a long-term, sustainable approach. Consequently, security and sound decision-making are of the utmost importance, in particular when it comes to finances. While short-term measures are sometimes needed, they’re not implemented before a thorough analysis of potential long-term effects has been conducted. When they’re introduced it is with great conviction.
Efficient working capital management and optimization of cash distribution logistics
The optimization of working capital has been an important project as of late. The company reviewed payment targets at several suppliers and standardized settlement processes to free up liquidity. In addition, a long-term reorganization of cash collection processes (rather than the often-problematic cash supply) is on the agenda.
In the past, it was customary to work directly with the bank at the airport, but today the business prefers to work with cash collection providers. Putting in place these services is a real challenge given the many different and diverse countries in which Gebr. Heinemann operates. There’s not one single suitable provider of cash distribution logistics for all the relevant locations. This is why Heinemann needs to make use of several services – the continued trend towards cashless payments working in their favor.
Straightforward currency and interest management
FX and interest risk management is clearly structured at Gebr. Heinemann and as straightforward as possible. The same goes for interest management. Treasury has developed a structural framework for FX hedging (approved by management) based on FX options revolving every quarter – a very standardized process. Interest management is one of the biggest challenges in treasury – in particular due to negative interest rates. Gebr. Heinemann is no exception here and illustrates the current curious situation on the financial markets.
The curious issue of negative interest rates
The company has for example concluded an interest rate swap, involving the swap of variable for fixed interest rates. Financing operating resources traditionally entails variable interest rates, contrasted with interest rate swaps to hedge low interest rates. Normally, variable interest received as part of the interest rate swap matches variable interest to be paid within the framework of the operating credit line, and fixed interest from the interest rate swap provides hedging during the lifetime of the interest rate derivative. This has changed with some banks (who are not willing to pass on negative interest rates to their customers), leading to the following interest risk scenario: the customer continues to pay variable interest (at least 0.0%) + margin on the operating credit line; in addition, they pay variable interest (because of negative interest rates) in connection with the interest rate swap; and finally they also pay fixed interest. “This essentially cancels out the hedging effect. Luckily, we agreed interest rate floors and were able to prevent this pretty absurd situation.”
Process-driven treasury instead of spreadsheets
Sebastian Marks and his team of four constantly tackle new treasury issues. They could’ve rested on the laurels of a really effective cash management. Instead, they set a new target which they pursued diligently: the digitalization of additional processes and the integration in one overall system. Given the scale of their business, working with spreadsheets is out of the question for a company like Gebr. Heinemann. This means backing system-based methods for efficient financial management. Step by step, the treasury team is working towards an intelligent and globally integrated treasury.
Any existing spreadsheets are consolidated in one system – even if that means changing and restructuring a functioning cash management. Gebr. Heinemann also aims to capture any kinds of contracts in the system, in particular the many guarantees needed for large duty-free shops as early as during the tendering process. This also includes FX deals, credit lines, bank and intercompany loans and last but not least global payments.
Global tendering processes at airports usually entail tender guarantees as early as during the first round. If we’re then lucky enough to get the contract, we also need rent guarantees and payment guarantees. We’ve been involved in tenders for significantly larger surface area shops recently, and in turn we require larger guarantees.
Global rollout one step at a time
Sebastian Marks and his team are convinced that having one single payment tool for entering, processing, approving and releasing payments for all group companies is the right idea. But while they’re clearly embracing innovation, caution remains the name of the game at Heinemann: they’ve started implementing the overall concept in Germany and are approaching it slowly but steadily. Once this first step has been taken, they will decide on how to proceed. Austria and Poland appear to be suitable regions to continue the process.
They do have an overall time frame for the project and would like to see their vision come true within 24 months, maybe even integrating a few other functionalities, such as liquidity planning. They will also be planning carefully how to best continue the implementation, drawing on the experience from the ongoing project.
Mature strategy for a reliable treasury
The matured cognac on display mirrors the continuity, Hanseatic understatement and consistent implementation of strategies that are characteristic of Gebr. Heinemann. This is also what the treasury department stands for, managing processes worldwide with only a team of four. They support the local entities and embody a professional and global treasury.
The treasury department has a sound footing and short of a volcanic eruption (such as the one of the Eyjafjallajökull in Iceland in 2010), not much can shake them.
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