Porsche Corporate Finance GmbH is the financing arm of Porsche Holding GmbH. The company employs 700 people in China, two of whom work in the treasury department. The treasury oversees the operations of nine local car dealerships, each of which has its own staff and on-site finance manager who takes care of the business’s day-to-day operations.

Albert has been Porsche Corporate Finance GmbH’s China Treasurer for the past two years, during which time he set-up the department from scratch. Before joining Porsche, he worked as a treasury consultant in German-speaking Europe.

With China’s economy very much in the fast lane, it’s no surprise that car ownership in the country has accelerated over the past decade. Double-digit economic growth has fed an appetite for most consumer goods, not least premium brand motor vehicles. A study carried out last year by Automotive News suggested that this trend is set to continue into 2012, by which time car ownership in the country will have outstripped that in Europe and North America by some margin.

If anyone has been well-placed to note the changes in the Chinese automobile market over the past few years, it is Albert Wolfmayr, Regional Treasurer at Porsche Holding in China. From his vantage point in Hangzhou, he’s witnessed a rapid rise in the demand for luxury European and North American vehicles in the two years he has been in the job. “The Chinese like to driver bigger cars than people do in Europe and demand for luxury and premium brands is growing,” he says. The statistics bear him out. In 2010, thanks to the popularity of high-end SUVs like the Porsche Cayenne and BMW X5, Porsche China improved on its previous year’s turnover by 100%. Albert says he expects that figure to rise over the next few years. So does the Automotive News survey, which predicts that total car sales in the country will reach the 20m mark in 2011.

Porsche has had a presence in China since the craze for four-wheels overtook the country in the mid-2000s. In 2004 it embarked on a pilot joint venture with a local Chinese dealership in Hangzhou and soon after secured a more permanent foot-hold in the country when it established its head offices in the same city and opened a second showroom, this time in Beijing. The company never looked back – it now employs 700 people and operates nine 4S dealerships in some of China’s most populous cities.

Albert took the reins of the treasury in 2009, when he gave up his job at a Vienna-based treasury consultancy, Schwabe, Ley & Greiner (SLG), to take-up the challenge of setting up Porsche Holding’s China treasury from scratch. Prior to 2009, Porsche Holding’s China CFO had taken care of the cash management. In 2009, the parent company decided it was time to rethink their strategy for China. “In Europe, the whole organisation is built-up in a matrix organisation. Each person has functional responsibilities and also country responsibilities,” says Albert. “For China, we revised our strategy a bit. It was the first time that a wholly country responsible person was sent to Asia to build-up a treasury locally.”

The company has also taken a fresh approach to the way the central treasury in China interacts with the local dealerships, which, as a result, have been afforded a good measure of autonomy. Each showroom has its own staff and an on-site cash manager who is responsible for the day-to-day cash flows at the dealership. “Each finance manager is responsible for accounting, balances, cash management, and the local banking relationships,” Albert explains.

This leaves the central treasury at the HQ in Hangzhou to take care of the China group’s overarching cash management and financing needs. As such, Albert and his assistant cash manager are responsible for maintaining reporting structures, overseeing the company cash pool, and communicating with its international banks and the European group treasury in Salzburg.

In this interview, we talk to Albert about his role, his responsibilities and the challenges he expects his department will face over the next few years.

Can you give us an overview of your treasury operations?

Porsche Holding GmbH’s headquarters is in Salzburg, Austria. The central group treasury is conducted by Porsche Corporate Finance GmbH located in Salzburg and Zurich, which is responsible for the execution of the global company’s treasury responsibilities. As of 1^st March 2011, Porsche Holding is a wholly owned subsidiary of Volkswagen AG, but this subgroup will carry out its autonomous financing strategy also in the future.

In China, each of our nine dealers has a fully-functional finance department with a local finance manager. They are responsible for accounting, balances, cash management, and payments and collections, and dealing with local banks.

The local dealerships have to send reports on their daily positions and cash-flow forecasts for the next two weeks to our centralised cash manager. This is then consolidated in our centralised treasury department in Hangzhou where I and the centralised cash manager work out the financing needs for the dealerships.

Do you pool your cash?

Yes. It was a lot easier than I first thought. We don’t have a holding company in China so each company is a sister company of the other. With the entrustment loan structure that is offered by the banks, cash pooling is a similar set-up to that in Europe – only with a bit more paperwork and documentation.

It is a zero-balancing cash pool, run differently to a European cash pool. We are car retailers so we have a lot of local collections, which means we have a lot of cheque, bank draft and cash collections to make. This has to be handled locally with local banks, but unfortunately these are not included in the cash pool.

The master account is in Shanghai. The sub accounts can draw entrusted loans from this account. Collection is done locally on a daily basis and in the evenings, there is a manual remittance of the balance from the dealers’ local accounts to the pool sub accounts in Shanghai where an automatic zero balancing clears the account overnight to the header.

Which banks do you use?

The cash pool is with Deutsche Bank, which is also our main cash management bank in China. We also work with Raiffeisen Bank International (RBI) and the Royal Bank of Scotland (RBS). The last two we use for financing and we expect to work with them on FX hedging in the future.

We use two core local cash management banks – ICBC and China Construction Bank (CCB). They offer us cash collection/payments services.

There isn’t a great deal of connectedness between the local and international banks. It’s difficult to convince the local banks to combine their cash management solutions with the foreign banks. This means that the local banks are not in the cash pool structure, but in the future we want to use local banks that can make automatic remittances.

Do you see that changing in the future?

We hope so. We started with a project in March with local commercial banks which are perhaps more likely to team-up with international banks and we have just finished our first interviews. We hope to convince local banks in the cities we are in to take part in it.

The two banks we use at the moment are part of the ‘beauty contest’ and we definitely don’t want to break them up. I imagine the long term good local relationship will influence our evaluation, but we want no more than two to three local banking partners. We expect the evaluation period to go on until June.

With a beauty contest in China, it is not like with a foreign bank where you send a questionnaire and they fill it in. For the Chinese banks, I think it is more important to have a little bit more personal interaction and to give them the questionnaires directly. It is also necessary to give the Chinese local banks a bit more time to discuss things internally and to see if they will go up to the provincial level.

What sources of funding do you tap?

Most of our financing comes from banks and shareholder loans from the parent company in Europe. We also use revolving credit facilities and bank accepted drafts (BADs), which have certain advantages in China. We also have an overdraft on the cash pool. These accounts are with Deutsche Bank, RBI, and RBS.

We don’t use commercial paper or money market funds at the moment, but the situation regarding these instruments is becoming more interesting, with demand from Chinese people for CP growing. We will have to start to prepare to do it over the next few years. In the last few years it has grown in importance.

With loan quotas given to the banks, it’s getting more difficult to get bank loans so it is important to improve sources of credit and diversify our liquidity security. We are rather conservative on the long-term funding front too. A big part of our financing is equity financed. We also have minor bilateral bank and entrustment loans. The bilateral loans are with RBI.

What do you do with your excess liquidity?

We have a conservative strategy. We put it in bank deposit accounts. What we can do with our excess cash is constrained by our group counterparty limit rules. For this we mainly leave it with local banks which also show more flexibility with cash management conditions; namely collection and remittance fees.

In some cities, we have special conditions with certain banks so we put the money on deposit there so we get to keep our special conditions. The group treasury in Europe calculates the counterparty risk for the banks we do business with in China.

How does your payment process work?

We mainly use our cash pool account to make payments. Sometimes for local requirements, like tax payments, we have to use the banks the local authority uses. For example, some tax authorities require payments to be made via the banks they use. This means we have to use more local banks, but things are changing – it used to be four and now it’s two.

How do your receivables work?

It is different from city to city. In the retail business you are very close to the market and the individual and people here still use a lot of cash payments. Sometimes a customer thinks he can even pay RMB 500,000 in cash! However, POS collections namely with debit cards are becoming more popular, especially in the first and second tier cities.

POS collections, cheque payments, and Bank Accepted Drafts (BADs), and payment against invoice are becoming more popular. Customers are often reluctant to remit money first to the dealer and then get the invoice, but things are changing.

In my opinion, POS collections and – especially in the car business – retail financing are the way forward. In China, we use loans – so there is no leasing. The main part is to help the customer to find a financing institution to provide the auto loan and then the bank remits the money to our account and we can release the car. This is increasingly demanded from our customers and it will make the collection process easier.

What have you learnt from your time as China treasurer?

It is important to understand the corporate culture of the two countries and link the two together. This is important so we can explain to local people why we have to do things according to our European corporate culture. And I explain to the European parent company the Chinese way of doing things. It is still a very European company. We don’t have any joint ventures here anymore, which makes the structure and organisation much simpler.

Do China’s currency controls affect you?

No, because we are a purely CNY business at the moment. In the mid-term, I see more potential for off shore funding and, in particular, for getting RMB in other countries and taking-in funds from Salzburg directly. It may even be possible to operate a cross-border cross-currency cash pool. For the mid-term that is the direction in which we are going.

At the moment, we use equity and short-term funding sources, such as shareholder loans. They are a major part of our funding because it’s a secure source which is longer term in China and from this point even comparatively low work load to local short term funding.

Loan financing locally requires more documentation so it is maybe easier to take the steps to make the application to make the remittances one time for 12 months than to make every month revolving credit applications.

What are your plans for the future?

We are looking to expand our dealership network in to second and third-tier cities. We also intend to integrate our systems with our European business; the beauty contest with local banks is part of this process and the final aim of the contest is to link them to the cash pool and get the information to the headquarters in Europe.

We also have plans to implement a TMS which will provide a link between China and Europe. At the moment, we use excel spreadsheets – not a treasury management system – and a web-based system. Our nine dealers can manage with Excel, but it involves a lot of error potential.

For example, if a finance manager changes one formula in one sheet it becomes difficult to consolidate in others. The aim of every treasury I think should be to get rid of Excel spreadsheet reporting and use a TMS. It is very popular because you can do everything, but it is possible to make every mistake, too! I know many corporates which are our size who still use it, but the corporations that get bigger tend to use a TMS.