Achieving System Independence with In-House Banking

How Primetals Technologies went from heavy giant to lean champion in six weeks
Primetals_HEADER

From heavy giant to lean champion in six weeks

Primetals Technologies, based in London, is a joint venture of Mitsubishi Heavy Industries and Siemens who joined forces in January 2015. They are a leading, innovative, and future-oriented partner specializing in steel engineering. Building & engineering steel plants for further production, the company has 40 entities in 20 countries. Primetals’ treasury department is made up of 10 full-time treasury team members, with Jeremy Hamon being the Head of Treasury, a close friend of BELLIN, and our honored interviewee.

The challenge

When the joint venture was announced in 2014, the future Primetals Technologies was faced with the massive challenge of building a treasury from scratch and becoming completely stand-alone within only a few weeks. This included performing thousands of FX trades in the first year of activity, performing revaluations including hedge accounting, trade finance, opening bank accounts and ensuring payment readiness without any legacy.

The treasury team had to start from zero, with no employees, no structure, no guidelines, no bank accounts, no treasury system and a looming deadline ahead. It was essential for Primetals Technologies to keep their treasury organization and processes lean and manageable while focusing on straight-through processing, all with a completely new treasury team at headquarters.

In a global cash concentration setup, bank dependency can also be a concern since cashpooling traditionally involves accounts held in all jurisdictions that are pooled one to another. This drastically increases the number of bank accounts – and as Treasurers may know, more bank accounts to manage can add extra risk.

Additionally, group companies were originally utilizing a heavily centralized in-house bank on custom built tools. The system achieved a lot at a high cost for the central treasury but was not particularly user driven, making it difficult to implement for all other entities. The new tool had to be user friendly because of the typical requirements with a high-level in-house bank setup.

On top of centralized derivative trading and intercompany netting, their challenge was to re-create that setup in a much leaner way while achieving the same targets: on behalf payments and receipts wherever regulations permit.

 

Defining goals and system selection

Primetals was looking to replace the custom-built tools with the centralized in-house bank that was in place prior to the joint venture. To do this, a centralized treasury management system was their focus. The main concerns for Primetals were time, functionality, and ease of use.

Their goals included:

  • Setup of group-wide cash management focused on an on-behalf approach
  • Optimize intercompany financing and FX trading
  • Reduce bank account volume and payment formats
  • Establish Trade Finance Warehouse

With their goals in mind, Primetals saw BELLIN tm5 as their ideal choice. Fundamentally, BELLIN’s fast and personalized implementation support combined with the system functionality met Primetals’ needs.

The goals were defined, and the system was selected. What were the results?

 

The solution and results

In the record time of six weeks, Primetals Technologies introduced their treasury system with BELLIN’s consulting assistance. The implementation included the setup of group-wide cash management considering hundreds of new external accounts aiming at creating internal accounts in a second step. This enabled Primetals Technologies to capture all their FX trading, including an interface to 360T. The group-wide financial status with detailed intercompany financing balances and FX trading positions became available with one click.

Since 2016, Primetals has essentially created a payment factory in tm5 that works with multiple in-house banks. In practice, intercompany accounts are used to perform payments in a standard format that all map to the required external formats. As a result, the multiple in-house banks are bank agnostic and can choose banking partners on a currency basis ensuring best access to cut-off time and full optimization for the group of interest on swap dispositions. Additionally, the payments-on-behalf-of (POBO) setup enabled Primetals to close more than 100 bank accounts and limit its number of core banks to just 3.

A visual representation

 

Summary of results

tm5 has helped facilitate the in-house banks by providing a payment factory that gave many value additions:

  • Independence from ERP systems (one payment format for all non-confidential payments globally)
  • Increased independence from banks (format mapping in tm5 removes any technical dependency)
  • Access to the most aggressive cut-off time to ensure full optimization of interest on disposition currency swaps
  • Intercompany financing , intercompany netting and centralized FX trading

Future focus

Regulatory changes remain a focus as Primetals extends their in-house bank setup – but naturally from a technical perspective Jeremy’s focus lies in:

  • Speed (cut-off from banks, instant payments)
  • Transparency (e.g. SWIFT gpi) in payment processes
  • AI supporting first fraud detection and as well other disciplines
Key Facts
Industry
Metallurgical Plant Solutions
Founded, Headquarters
2015, London | UK
Employees
7,500
Companies
40 operating companies Active in over 20 countries
Modules in use
LM, TT
With BELLIN since
2016
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