Efficient Treasury - Knowledge is King
GfK SE is a leading market research organization and was founded in 1934. In Germany, it is a household name, thanks to the GfK consumer confidence index and consumer behavior and TV ratings panels. GfK’s success is not limited to Germany though. Headquartered in Nuremberg, the company is known around the globe and internationally successful. It has around 13,000 employees worldwide, a turnover of approx. EUR 1.5 billion, and operates in over 100 countries in North and South America, Europe, Asia, Australia and parts of Africa. This makes GfK a real global player – the fifth most successful market research institute in the world.
Continuous growth – mainly through acquisitions – has made GfK the sizeable business it is today. This includes the takeovers of Netquest and Wakoopa to gain better access to the Latin American market for online panels, or the acquisition of NORM Research & Consulting. GfK is now active around the globe. The broad range of activities and large country portfolio come with a number of challenges for the lean treasury department headed by Group Treasurer Frank Kröner. “Growth from Knowledge” is GfK’s guiding principle, and this is also embodied by the treasury team. We meet Frank Kröner at GfK headquarters in Nuremberg to find out about GfK’s “recipe for success” in treasury.
Frank, can you sum up GfK’s central business model in a few sentences?
At GfK, we’re all about cross-media links. We engage in efficiency measurements, for example in relation to advertising activities across several types of media. This can be TV or radio campaigns, posters or even online advertising. We analyze for example how many test drives could be gained from the advertisement of a new car. GfK boasts top methodological expertise, combined with digital data available today.
How does this business model translate to treasury?
Essentially, GfK is a consulting business, our product being the processing and evaluation of data. We would describe our treasury responsibilities in a very similar way: we also provide consulting, i.e. to our subsidiaries, and help them make the most of their data. As does GfK as a business, the treasury team looks after over 100 countries and covers nearly every part of the globe, with the exception of Sub-Saharan Africa. GfK’s maxim is also the treasury’s maxim, “Follow your customer.”
How would you define treasury when it comes to your company? What are typical – and not so typical – areas of responsibility?
The treasury department is GfK’s “custodian” and ensures a solid liquidity position. I would say this is a definition that probably stands for most businesses. That said, the particular focus is different for each corporate treasury department. I’ve been active in treasury for 20 years now, and I can identify five key factors that determine the focus of our work:
- Firstly, there’s the business model: GfK conducts “people business” – unlike companies that are very active in production or even the construction of manufacturing plants and therefore need to take into consideration large sums of capital being tied up.
- A second factor is the systems landscape: treasury responsibilities depend on how and to what extent different accounting and controlling systems are or were in use. This concerns their ability to provide treasury with data, and in turn to capture treasury data.
- A third relevant point is the ownership structure: the treasury responsibilities in a listed company are different from those in a family-owned company. On top of that come situational factors, such as the involvement of private equity investors, or even an upcoming restructuring.
- A fourth relevant point is treasury’s integration in the organizational structure: it is of importance whether the treasury department reports directly to the CFO, or if there are intermediary levels. It is also important what kind of relationship the CFO has with treasury. Experience shows that few CFOs have made any practical experiences with this discipline. Depending on these points, requirements and the degree of autonomy differ.
- And last but not least a company’s “risk appetite” makes a difference: the stance on risks in connection with interest, FX or commodity prices represents the framework for the instruments to be selected and for the data to be used for measuring these risks. Obviously, this also depends on how global core business activities are.
How would you describe your exact responsibilities?
To this day, my parents ask me on a regular basis what exactly it is that I do. It appears that I’m still not able to describe my responsibilities in a way that makes them fully clear to an outsider. Really, it is very simple, though. We make sure that the group’s money is kept together; we’re the point of contact for all banks, and ultimately we’re the ones who process salary payments. This is the one aspect for which everyone at GfK knows us (jokingly). Currently, we have a business game called “Apples and Oranges” running. The aim is to explain “financials for non-finance,” and we try and spell out the financial cause-effect relationships within the group to make them understandable to colleagues from all different business units: how do we make sure that we don’t just make revenue but have a profit margin, and how do we guarantee that we have the necessary liquid funds? This is a campaign that puts treasury in contact with even the “furthest corners” of the organization.
Can you describe a typical day at GfK?
The daily cash balancing of all current accounts is an important aspect of our work, in particular the accounts that are integrated into our EUR, GBP, USD and CHF cash pools. We need to ensure that funds are allocated within the group in the best possible way. We also ensure the payments of all entities in Germany that are grouped in a Shared Service Center are processed smoothly. With EUR 400 million, they represent around 27% of the group’s volume. If new orders in foreign currency are received, it is up to us to provide hedging based on the rates used for posting. The hedging rates are the previous day’s end-of-day rates. What else? We also provide comprehensive services. For example, we organize the intercompany funding centrally and then allocate it internally. We’re also responsible for netting, which we do once a month. As an in-house consulting unit we also help optimize banking processes in group companies, and as an in-house bank we run settlement accounts and provide guarantees, which are sometimes required.
That sounds like a pretty extensive portfolio of responsibilities!
Yes, but that’s not everything yet. In addition to these routine tasks, we’re also responsible for the entire banking communication with our ten main banks. The relationship with them is very important and we’re very active when it comes to relationship management. Moreover, other business units request information from us. This can be tax-related questions, or a group company’s payout rate, or a reporting-related issue, for example within the framework of investor relations. We also sometimes provide data to group accounting, or we do sensitivity analyses or valuate derivatives as part of an annual report. You can rest assured: we’re never bored.
What role do banks play for GfK?
They are very important, key partners. We have ten main banks, which is a relatively large number compared to other businesses who often cooperate with significantly fewer institutions. A few years ago we still had fifteen main banks. We divide our banks into two groups: those who support us with local business on an international level; and those who mainly provide refinancing. I believe this makes great sense, not least from a risk management perspective. At the moment, bank loans account for approx. 27% of our finance lending volume – and obviously we have a very close relationship with these banks. Especially in the somewhat more complex countries, however, we still require additional local partners. Overall, we have 180 legal entities in around 100 countries and a total of around 120 banks providing approx. 550 accounts.
Would you say that from a structural point of view this makes GfK more cash short?
That depends on how you look at it. We have a very long-term approach to financing. Our net debt amounts to around EUR 300 million and needs to be refinanced and paid back in the next twelve years. This makes us essentially cash short – but not in the short run. Excess liquidity is not put towards the early repayment of long-term loans, providing us with high amounts of liquid funds and making us more cash long.
How about export and import – where do you see yourself on that scale?
Again, this is a matter of perspective: essentially, we “export” data to customers abroad. Many people who commission our services want their request handled directly from GfK Germany, even if data is collated in different countries and regions around the world. In these cases, we work together with our local entities. This means that these projects result in a large number of intercompany settlements while the commissioning party is invoiced centrally. Every once in a while, one of our local companies is commissioned directly, but this is the exception.
Given GfK’s framework conditions, what are your greatest challenges?
Our top priority is the optimization of processes. This includes taking into consideration and creating interfaces to other systems. A typical example is the settlement of interest on the in-house bank’s current accounts. This is created in the treasury system and then included in a manually created interest calculation in accounting. This is a process where automation would make great sense. Or take payments – another area with great potential. I would like to see payments not only centralized in Shared Service Centers, (for example in Germany, the UK or the US, via centralized accounts) but group-wide for all entities, giving us direct access to current accounts. This would leave us with few accounts, but they would be in the hands of the treasury department, and we could process everything centrally. But it’s probably going to take a while until we can make that scenario a reality.
What changes has GfK’s treasury seen in the last 24 months?
Our aim has been to structure the organization in a way that makes us best placed to handle compliance and security requirements. From a structural point of view, dividing the department up into front, middle and back office is very important in this context. For us, mainly the middle office was new. This is where we now ensure that user permissions in the treasury management system are maintained correctly, that dual approval is upheld, and that we can report to the CFO at any time. In addition to a treasury guideline for subsidiaries, we now also have a policy for central treasury that clearly defines best practices. Lately, we’ve also faced the question of how we can best respond to increased requirements in the market in connection with for example EMIR or KYC (Know Your Customer).
And how do you plan to continue the process in the next 24 months?
We need to continue to monitor banks very closely to see how their role is going to develop. We need to wait and see what exactly corporates will be faced with, and what responsibilities FinTech companies will or might have to take on. Pricing schemes are certainly set to change. We can continue to concentrate on internal optimization, including the optimization of the use of our TMS, in the next one to two years.
What role do treasury management systems play for you?
Our TMS is at the heart of everything we do in treasury. The system is enshrined in the treasury policy for all subsidiaries, and it is the place where all financial transactions worldwide are captured. Nearly all group companies with well over 300 users use the treasury system, and very actively so. No one would want to miss it, especially when it comes to netting. The group companies keep telling me that they’ve never had a better system, and it’s nice to get that feedback. We were also fortunate to find a new employee who completed part of his professional training at the provider and has a very thorough knowledge of the system. That is of great use to us.
What would you recommend to corporates who are not using a system yet?
There’s simply no way around a system. Before you start looking, you should think about what you actually need. In my opinion, a modular and scalable approach to structure and implementation makes sense, so you can add on should you need to. GfK was already using the TMS when I started, and I was positively surprised by what it has to offer. It fits the company perfectly. When it comes to introducing the system, I would recommend taking it step by step – starting with the small steps and extending as you go along. This is what I did at GfK. Once the system had been introduced, we conducted an analysis to find out how we could use the system more widely. We then took it step by step, for example by integrating payments or adding risk management. This step-by-step approach was easily possible with our TMS. Of course, it makes sense to consult reference customers who use the same system. This is always a good benchmark. Other companies from the region also visit us on a regular basis when they consider changing or extending their system landscape
You’ve been a treasurer for quite a while now. Looking back, what have been the defining moments for you?
A while ago I was charged with transferring a sum amounting to billions from Germany to the US within the framework of an acquisition. It so happened that the transaction fell on a Friday. We submitted the payment as usual and our account was debited. However, the recipient bank could not confirm having received the money. So we were sitting here in Germany, late on a Friday evening, and only a small part of the overall sum had arrived in the US. Interest alone would have amounted to millions in this case! Fortunately, we could eventually work out what had happened: for technical reasons, the central bank had only forwarded part of the payment. Once we’d identified the problem, we could swiftly correct the error. But I will never forget those hours of searching for millions of USD – after all, I was responsible for the transaction.
Is it experiences like these that have made you stick to treasury?
Well, I don’t think anyone would want to live through that twice. But the singularity of a situation like that is certainly something that appeals to me. The dynamic nature of the markets that impact treasury, the diversity of responsibilities and instruments that can be used over time, and the international nature of transactions – these are the things that I find exciting. I’m 42 years old and I’ve had the privilege of seeing and experiencing a great number of things. For example, I was present for one of the first private placements worth USD 1 billion of a German company in the US. Things like that make this job so interesting.
Have you always wanted to be a treasurer?
Definitely not. In the end, it was a combination of coincidences and interests that led me in this direction. Otherwise, I might have become a teacher in a vocational school. At least that’s what I set out to do when I graduated from high school. I started my career in a bank, and while working for the credit department wasn’t really my thing, FX trade greatly interested me. Having worked for the bank I got the opportunity to move to the corporate sector and established myself in international treasury. I was fortunate enough to have made it into a management position by my early thirties. Now I’m here, and I’m very happy in this exciting professional environment.
What makes GfK’s treasury interesting?
The dynamic nature of the organization and the environment GfK operates in is a defining factor for GfK overall, and also for the treasury department. Since mid-December 2016 for example, we’ve been seeing a new development. The private equity investor KKR has pledged an investment in GfK, and this is sure to raise new and different expectations for GfK’s treasury. The due diligence process ahead of the investment offer alone was very interesting and instructive – something you don’t experience every day. We now have to wait and see how requirements, and thus our priorities in treasury, are going to change. There’s always something going on. I’m in a position where I can help shape things, optimize processes, provide services to group companies, and create the ideal combination of financing options in cooperation with banks and investors. And all of this – contrary to what many people at GfK think – happens in a very international context. Of the 13,000 employees, only 2,300 work in Germany, and the majority is spread across over 100 countries. To me, this rounds out my responsibilities nicely.
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