AkzoNobel: A Journey with HSBC – Building a Strong Partnership
Treasury Transformation: Delivering Value
Our journey with AkzoNobel started in 2007, when they embarked on a treasury transformation project called ‘One Finance’, with the intention of achieving a number of key objectives for their finance function:
- To operate and be benchmarked as ‘best in-class’ level versus our peer group
- To provide comprehensive support to their businesses
- To maintain integrity
- To meet their corporate values
The project was demanding and entailed changes to their banking infrastructure, technology, treasury policies and relationships with business units.
As part of One Finance, AkzoNobel floated an Asia cash management RFP in 2009 with the intention of increasing visibility of cash, improving cash flow control, enhancing cash management and FX efficiency and standardising documentation under global and regional groupings.
In view of its extensive network, HSBC was appointed by AkzoNobel as the company’s primary banking partner in a broad range of regions and countries:
- Asia Pacific: China, Hong Kong, Indonesia, Japan, Singapore, Philippines, Taiwan and Vietnam
- Middle East: Bahrain, Egypt, Qatar, Turkey, Saudi Arabia and United Arab Emirates
- Latin America: Mexico and Argentina as part of subsequent RFP’s for the respective regions
In order to meet AkzoNobel’s objectives, the solutions that HSBC needed to deliver included a single centralised electronic banking platform, Payment on Behalf of (POBO), payment in the name of and cash pooling structures. In order to accomplish these implementations successfully, it was apparent that close collaboration would be required. This was accomplished by a combination of detailed dialogue and robust project governance by the steering committee, which established a shared vision and goal. This meant that HSBC understood the requirements and was well prepared from the outset to partner and provide strategic advisory during the transformation journey.
The project included design and development of various SAP treasury modules, such as in-house cash, payments factory, treasury risk management, and SAP XI, together with the application of XML ISO 20022, MT101/940 messages and SWIFTNet through a Service Bureau. Once implemented, these would improve control over cash flow as well as enhance cash management and foreign exchange execution.
An in-house bank structure was deployed in Asia Pacific and zero balancing structures were implemented from all open and semi-open economies into Singapore, where POBO and payments in the name of are executed.
The benefits captured by successfully implementing these solutions have been substantial. AkzoNobel has been able to reduce the number of bank accounts it holds by 50%. Furthermore, by streamlining processes it has been able to lower foreign exchange and transactional charges by nearly 70%, as a result of economies of scale and straight through processing. An important consequence of these improvements has been that they have been able to enhance their capital structure by substantially reducing net debt and freeing up working capital.
In addition to the cash management mandate, in March 2014 HSBC was awarded the sole bank mandate for trade finance activities, which included letters of credit and guarantees. (All these were previously managed locally by each entity, resulting in an inefficient process.) The mandate spanned 14 countries in Asia Pacific, with AkzoNobel NV borrowing under a single umbrella facility.
AkzoNobel has also revisited the management of foreign exchange risk in a search for further improvements, which has since resulted in the introduction of centralization of hedging exposures for restricted currencies in Asia Pacific. Pre-agreed margins have been established up to certain thresholds with HSBC, after which Bloomberg FxGo is used for competitive bidding and transaction execution.