Prime Treasury - from Zero to Hero
Über Primetals Technologies:
Primetals Technologies, based in London, is a leading partner specializing in steel engineering. The company was formed in 2015 as a joint venture of Mitsubishi Heavy Industries and Siemens. A few years back, Siemens took over Voest Alpine Technologie in Linz, Austria, and turned it into a global group specializing in technologies across the entire production chain of a steel plant. Mitsubishi Heavy Industries on the other hand focuses in their metals business on cold steel treatment. By joining the two, the new company is now in a position to offer customers the entire value chain from steel production to finalizing end products. Primetals Technologies is a very international business with operations and subsidiaries in Asia, Europe, North and South America. They have 32 entities in 20 countries with around 7,000 employees.
The name reflects the aim: the “prime” in Primetals Technologies stands for excellence, for premium quality and premium services. The “Metals Giant” is the result of Siemens and Mitsubishi Heavy Industries joining forces in 2015 and seeks to be a leading, innovative, and future-oriented industry partner. The setup and the achievements of the company’s treasury department echo this very ambition, and Jeremy Hamon, Head of Corporate Treasury, underpins the objectives perfectly.
For many of the parties involved, the joint venture was a huge step and a real challenge, not least from a cultural point of view. In London, UK, a completely new group was formed that was meant to unite the structures of Siemens with those of the Japanese Mitsubishi Heavy Industries. When it came to treasury operations, Tokyo placed great trust in Jeremy Hamon and his team, granting them a lot of freedom for establishing a globally operating, professional treasury. While the former Siemens team had great treasury expertise and experience, it was nevertheless faced with the challenge of having to take over the activities of over 30 subsidiaries in a very limited time frame and to set them up again from scratch.
Stand-alone: leaving Siemens cash pools over night
To lay the foundations of day-to-day treasury operations and payments, the treasury department’s first priority was to select some main banks and to open new bank accounts in 20 different countries. Liquidity is a real deal breaker for the company – something the former Siemens treasury team never really had to worry about in the past. Liquidity was never an issue and they were always in a position to be able to pay, as the Metals Division was integrated in the group-wide cash pool, i.e. the general distribution of liquidity in this large multinational group. The newly formed Primetals Technologies had to establish their own structures, and this became a fundamentally important task and a top priority and challenge for the treasury team – not only because they were pressed for time. It also involved talking to the group companies, as it emerged that not all of them even knew what it means to establish credit lines. During the first few months, it was mainly the regional subsidiaries that needed to be told how important sufficient liquidity and funding are for day-to-day business and sound planning.
Liquidity planning with a whole new urgency
Liquidity planning at Primetals Technologies is generally clearly structured and straightforward. Being a company that provides engineering services, Primetals Technologies has incoming cash flows from two main sources. The first source is revenue generated from large projects, such as building or modernizing steel plants, that often bring in three-digit million euro figures. Most of these projects and the corresponding cash flows are divided into tranches and can be factored in long term. The second source of income are maintenance operations – a relatively steady and predictable source of income. Potential new orders on the other hand are a different story: no one can predict if and when they will generate income. However, it is standard for most businesses to include such positions in their liquidity planning. All of this still makes for fairly manageable liquidity planning. What makes the process complex is the global framework: steel plants are rarely built in inner city locations in industrial countries. They’re more likely to be placed on the outskirts of cities in emerging markets – in India, Brazil or China. Payments in these countries are heavily regulated, making compliance a key issue. In turn, this makes liquidity planning and funding complex topics, not least because FX risks in emerging markets are far greater. Consequently, the treasury team requires a sound hedging strategy.
China, India or Brazil – the art of FX hedging!
40% of the company’s revenue is generated in Eurozone countries and therefore not subject to FX risk; the other 60% are made up of a number of different currencies: while in the past USD would have been the dominant currency, more and more customers today expect to receive offers in local currency – and more often than not these currencies are difficult to hedge. This often requires forward cover, something that can entail considerable forward discounts given the current EUR interest rate levels against many other currencies, for example RUB. This is why FX hedging is a significant cost item next to engineering staffing costs in Europe. The sales department cannot always interpret these figures and treasury often has to explain and clarify.
Given the many different types of interactions between treasury and local entities, Jeremy Hamon and his team have been able to make a name for themselves in the group in this relatively short period of time. Most of the group divisions work closely with them, certainly all of those who have something to do with finances. Thanks to their impressive achievements and the sheer speed with which the treasury has set up the required structures, they were able to get up and running much faster than many other teams. The treasury department is heavily involved in hedging and liquidity planning but also accounting issues, suitable pricing or the handling of credit lines & parent guarantees. Jeremy Hamon and his team are ideally placed within the business to best support the company with the challenges it faces, to keep the organization together and to ensure that everything runs smoothly at various interfaces.
Treasury: the “doorman” protecting the company
In a way, the treasury team is Primetals Technologies’ “doorman” – the unit that makes sure that the many, and often substantial, external influences from the world of finance do not cause the company any harm, that the main line of business is unimpeded. The foundation of Primetals Technologies’ own funding body was one move to help protect the business. This company operates from London but is EUR-denominated – unlike the GBP-denominated holding company – and is responsible for all EUR hedging. This move entailed that over 3,000 outstanding FX deals, which had already been reported to the EMIR trade repositories in the name of the old company, had to be cancelled and be reported again in EUR in the name of the new entity – and all of this in a single day. A time-consuming endeavor that has already paid off: everything was completed several weeks before the “Brexit” referendum, and Primetals Technologies escaped the GBP turmoil following the UK’s decision unscathed.
“Prime” treasury – seeking perfection
The Primetals Technologies treasury is an international team made up of 12 people, six of them at headquarters in London and two each in Brazil, India and China. Together, they optimize liquidity management by means of cash pools in seven currencies including 12 countries, hedge FX risks in all markets and take care of centralized payment processing. The first important steps following the foundation of Primetals Technologies in 2015 have been taken, and now they can tackle the next major goals: the treasury team now focuses on enhancing the group-wide payments platform. They plan to establish a comprehensive collection and payment factory via the established in-house bank. Wherever legally possible, the Primetals Technologies treasury team seeks to close local accounts and to process all incoming and outgoing payments exclusively via the centralized accounts, reflecting them on intercompany accounts. The treasury serves as the in-house bank and is in an even better position to use and plan funding. Subsequently, Primetals Technologies also plans to establish intercompany netting. This will allow them to not just process settlement payments via the in-house bank and its accounts but to integrate the whole reconciliation process between the different group companies and to ensure everyone is on board to enforce these processes. The Primetals Technologies treasury team achieves all this on top of their extensive day-to-day business – treasury “from zero to hero,” and seemingly in passing.
Suitable systems are a must in order to meet the stringent requirements of a global and highly efficient treasury. Treasury must take responsibility for data and results, and without the appropriate technological support they could never achieve this with the required efficiency. Jeremy Hamon and his team want to create a framework for the diverse company that is Primetals Technologies; a framework that enables people to make decisions that will yield success. Jeremy is certainly not willing to compromise on his standards – he wants the “prime” in the company title to be mirrored in the treasury department.
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