Customer Situation:

An emerging market customer with strong export cash flows is reluctant to purchase capital equipment to expand to meet growing market demand due to lack of commercially attractive medium term lending.

Analysis:

Treasury International developed a client specific medium term customer financing program. Treasury International arranged for the client to purchase an assignable 3rd party credit insurance facility. Individual credit insurance policies were based on customer credit profile. Each assignable credit insurance policy provided arm-length customer credit evaluation. The credit insurance backed-stopped and secured three-year customer loans that financed client capital equipment sales. Prior to customer loan commitment, Treasury International and client pre-sold notes to international banks. The client agreed to limited recourse on note sales and the customer paid fees and interest spreads that funded client loan loss reserve.

Treasury International Action:

The customer financing solution for one $.5 million sale led to over $30 million annual additional high margin revenue. Margins on the customer financed equipment sales were higher than cash sales. The financing transactions were in $.5 mil to $1.0 million tranches and the notes receivable were sold to 3rd party financial institutions after first customer payments. The client was able to recognize manufacturing profit at the time of the notes sale and avoided ballooning its balance sheet.

Subsidiary Bank Rationalization

Customer Situation:

The client has eight separate legal entity profit centers in Germany . The total revenues were approximately $170 million per annum. Each entity has separate bank accounts and bank guaranty facilities.

Analysis:

Treasury International reviewed domestic banking facilities for all the units with local management. TILLC conducted an analysis of one month inflow and outflow of bank transactions segregating data into domestic and cross border receipts and payments. The data was then further divided into electronic, paper, and inter-bank transactions. The information was also segmented by currency value. Bank interface requirements with ERP systems were reviewed with each unit. A bank proposal request was sent to all credit line banks to bid for operating business based on units input and data submitted. The proposal included requirements for a domestic cash pooling arrangement and a bank guarantee facility to support in country equipment sales.

Treasury International Action:

New streamlined domestic system provided over $250,000 in annual savings in direct bank charges, a 1 day value dating improvement, and a .2% reduction in bank guarantee fees (about $25 million average outstanding). Each units was pleased as they recognized shared benefits and reduction of daily activities while maintaining control of their collections and disbursements.

Customer Situation:

A client had factories in USA , Mexico , UK and France selling to sales offices which sold directly to customer in over twenty countries. The factory invoicing currencies were EUR, GBP and USD. The sales offices frequently lagged intercompany payables when customer cash was delayed or when manufacturing unit did not demand payment. Each sales office hedged its FX exposure with corporate Treasury. The sales offices frequently rolled over hedges when delays occurred.

Analysis:

Sales units and factories lagged intercompany payables as a means of creating ‘interest free’ debt. The units understated net asset investment and masked FX exposure. Large quarter end swings in FX rates created unexpected FX charges. Sales office customer receivable collection delays were masked by large past due intercompany payables.

Treasury International Action:

Treasury International established a multilateral netting and cash pooling system that provided each sales office and factory the following benefits:

• A common settlement date for all payments due each month. Payments were made in local currency equivalent of foreign currency payable.
• Cash pooling system was established to give all sales offices and factories sufficient liquidity to settle all payables and minimize non-bank debt for all international operations.
• Provided management reporting and control mechanism that eliminated lagging payables without corporate Treasury approval. Understatement of net assets was eliminated.
• Provided client over $1 million annual transaction savings and twice that amount in improved subsidiary balance sheets and intercompany accounts and local management ownership of net assets.

Customer Situation:

UK subsidiary had a large year-end pension accounting ‘surprise’ that required significant equity charges to bring the pension assets and ABO liability in line with parent company accounting requirements. The parent was a US GAAP reporting entity.

Analysis:

Treasury International reviewed the client’s GBP 60 million ($105 mil.) asset plan that was 100 percent funded on an actuarial basis but funded at a 75 percent level according to GAAP. The plan was administered by the local Human Resources department, with guidance from external actuaries and pension lawyers. However, local management was unfamiliar with GAAP and recent UK pension law requirements. The UK plan trustees were unprepared to evaluate the impact of UK pension legislation on UK plan or on the roles required for trustees.

Treasury International Actions:

Treasury International provided guidance to UK and corporate fiduciary pension committee to make changes that brought best practices to plan management. TILLC met with Trustees, reviewed plan minutes, and identified plan governance issues which led to the following recommendations:

• Selected broad based investment manager after a search and evaluation of candidates; new investment manager provided a diversified plan portfolio which was measured versus global benchmarks.
• Evaluated trustee capabilities and then recommended management trustees changes with high level financial and operating management replacements.
• Reviewed actuaries and legal advisors presentations prior to trustee meetings which avoided self-serving proposals.
• Provided the parent company and local unit management a basis for understanding the financial impact of recent UK legislation.