Highly Commended in the 2012 Adam Smith Awards, Peter Schädelbauer re-engineered Lindner’s treasury so that it is capable of delivering the level of oversight and control necessary for survival in the worst of economic times.
Head of Group Treasury, Lindner Group and Managing Director
Peter Schädelbauer’s moves over the years from banking to corporate finance and treasury have armed him with a thorough understanding of how businesses operate. He also has a keen sense of order and balance, which has a lot to do with his expertise in the martial art of karate.
The Lindner Group KG, based in Arnstorf in Bavaria, Germany, is one of Europe’s leading companies for the building envelope, interior fit-out, insulation and construction-related services. Founded in 1965, the 100% family-owned business manages production plants and subsidiary companies in more than 20 countries across Europe and beyond. Lindner Group KG’s annual report 2011 revealed an operating income increase year-on-year of 22%, from €698.4m to €851.7m, with a balance-sheet total of €671.8m. Equity stood at €397m giving an equity ratio of 59.1%.
Despite the best efforts of certain governments to continue with infrastructure projects as a means of kick-starting their economies, the construction industry around the world generally remains troubled. But not every company engaged in this vital sector is struggling. Germany-based Lindner Group KG, a provider of what it describes as ‘building envelope, interior fit-out, insulation and construction-related services’, has not been immune to global financial upheaval, but according to its most recent financials, it has “excellent liquidity” at its disposal and an investment-grade credit rating with its banks. Recent negative developments in the Eurozone – the heartland of Lindner’s business – have put more pressure on the company’s general outlook, but it is responding in a way that few could see as anything other than impressive.
In short, it is a well-run business. Pre-crisis, as a cash-rich company, accurate cash forecasting was little more than a ‘nice-to-have’. The full effect of the 2008 crisis was somewhat delayed for Lindner as it had a number of major projects still with up to 18 months to run, but it realised well in advance of their completion that it had to take steps to protect itself, not least from the increased possibility of customer default. Liquidity planning and rolling forecasts were rapidly elevated to ‘essential’ status – a strategy put in place by the firm’s Head of Group Treasury and Guarantees and General Manager of Lindner Finanz, Peter Schädelbauer.
“We had to bring a lot of information together and create a new business plan to prepare the company for impact,” he recalls. The extent of his work over the years earned him a ‘Highly Commended’ in the Best Process Re-engineering Solution category of the 2012 Treasury Today Adam Smith Awards and crucially places Lindner in a stronger position to face the future.
The move to Lindner
With more than 23 years’ professional experience in the finance field, Schädelbauer, who had spent a decade rising up through the ranks of the German banking sector before moving into commercial treasury, moved to Lindner in February 2006. Here he took up a managing role within its banking department. This was not treasury per se but it handled most financial matters such as payments and bookkeeping. However, change was in the air and his cumulative experience enabled him to oversee the development of Lindner Group’s central treasury department, in-house bank and ultimately the creation in 2009 of Lindner Finanz which now acts as the main treasury and finance function within the group.
Having already seen positive results from the closer integration of functions and the optimisation of a number of processes and systems (including the creation of new reporting structures), the board (comprising the Lindner family) fully understood and supported the notion that to move forward, the company needed to invest in a major new software implementation. It sanctioned a discovery phase that kicked off in 2007, Schädelbauer citing this as “the beginning of the plan to optimise our processes to become a modern treasury”.
By 2008, driven by increasing complexity (new subsidiaries were being created and acquisitions integrated), the company commenced implementation of its first treasury management system (TMS). With Schädelbauer now fully ensconced in the treasury hot seat, a three-month market investigation provided a shortlist of three systems and ultimately a deal with Germany-based BELLIN.
The overall finance function now has nine staff (a mix of full and part-time) covering areas such as performance guarantees, billing, credit management and insurance as well as traditional treasury functions such as cash management. There was some scepticism from individual departments when their amalgamation into a group treasury was first mooted, but with the changes made in the past few years, inter-departmental working has enabled Lindner to vastly improve its finance function, each function now bringing information and understanding that the others do not have, benefitting all.
One of the outcomes of this co-operative development has been the creation of a major new financial report. It delivers vital information about the cash position, capital developments, outstanding amounts and so on, all in one monthly retrospective report, with specific weekly reports produced for matters such as liquidity and cash.
With around 15 banks and 300 bank accounts worldwide it was, states Schädelbauer, vital for Lindner to deliver the TMS and new reporting regime so that it could have an accurate and timely overview of group liquidity. Treasury now receives SWIFT MT940 electronic account statements, these being uploaded into the TMS, which records every transaction.
As part of its strategy for improved oversight, Lindner has also implemented an inter-company netting system. This covers all internal payments and is executed by the TMS before being uploaded to the ERP system (a bespoke development used group-wide from German vendor, Oxaion) for booking and so on. With these changes most transaction data from its banks can now be integrated within the cash forecast plan. The process itself is highly rules-driven and is currently capable of processing around 95% of all transactions, giving a daily cash overview of the all main entities within the group.
Technology is seen by Schädelbauer not just as a nice-to-have but as an “absolutely essential” part of Lindner’s treasury operation. Whilst treasury skill and judgement remains an essential part of the role, automation and process optimisation has enabled the expanded function to reduce many processes to minutes rather than hours. “When I started at Lindner there were five people in the banking department. It would be absolutely impossible with the staff we have today to run all the services we have now in treasury without technology; we should have a lot more people.”
The choice of 15 banks (where some firms of this size might work with just a couple) is part of the policy never to limit partnerships. A small number of core banks are used alongside a spread of other institutions. “It means more work for us but it benefits us too because we can easily compare banks, their terms and conditions.”
Lindner’s bank relationships are far from casual though and it has put in place limits and systems to monitor their performance. Data for analysis is drawn directly into the TMS from the treasury’s ancillary systems. As an example, where previously it had relied upon single bank connections for FX trading, Lindner now uses 360T’s multi-bank portal. The reporting tool enables easier performance comparison giving treasury a single view of which banks are offering the best deals over a specified period. The results are used to drive discussions with those banks, securing the best deals. Based on actual savings, 360T, he says, “paid for itself in six weeks”.
At a departmental level, Lindner’s credit management and insurance department is a prime example of how the firm has taken control and shaped its destiny. It no longer pays for credit insurance, instead running its own checks and setting its own limits. The decision to dispense with annual insurance costs is an interesting one: as the recession bit harder and many customers faced difficulties, the credit insurance that was available was often too expensive or highly restrictive in terms of which customers were accepted. By taking it upon itself to check customers’ credit worthiness and their ongoing status as paying customers (or otherwise), Lindner has been able to safely increase the number of customers it deals with. It is able to gather external information (from ratings agencies, for example) and data from its own records, to build a risk profile for each. From this it can create its own scoring, rating and credit limit which can be revisited as required or as credit events occur. “Because we monitor customers ourselves, we have more interest in the process and take more care,” notes Schädelbauer.
Indeed, as much of the order-to-pay (O2P) cycle is now in-house, any signs of customer default or a change in payment behaviour can be handled immediately. Additionally, if a customer requires a greater credit limit or different terms the credit department can make its own provisions, for example by ensuring the right performance bond is in place.
SEPA is the process du jour for many corporates, and having started a project to create the required environment in mid-2012, Lindner’s work on this is about 80% complete. “In December we tested Lindner Finanz completely for single and bulk payments,” says Schädelbauer. “Our ERP system is ready so we now need to prepare the system for creating STEP2 (the pan-European automated clearing house payments). We are on schedule to completely finish by September 2013.”
Schädelbauer is somewhat less sanguine about the actual benefits of SEPA though, arguing that it is not in reality a single payments area as every country still has its own format for XML files and separate ways of handling this. The dream of having access to every bank in Europe with just one file, he states, is not real. “There are still a lot of separate regulations. Overall SEPA has some benefits, but I don’t think it makes things much easier. It’s still too complicated.”
On the subject of complexity, he cites the European Market Infrastructure Regulation (EMIR) as another source of frustration. EMIR is the EU’s regulation covering all entities that enter into any form of derivative contract and concerns improvements in transparency and risk-reduction. “We execute a lot of deals internally and we also have to report those contracts. This creates a lot of work for us. The idea is to protect the market from speculators; making new regulations for companies is not the right way forward.”
Lindner Group does not have an external rating but its bank rating is currently investment-grade. Although it relies on its current cash flow and assets to support its general activities, from time to time significant long-term investments are made which do require a bank loan, such as its acquisition in May 2011 of UK-based Prater Ltd. (a building envelope specialist). “We also have credit lines on a daily basis with the banks so that if we have a project where we need say €1m or €2m for a couple of days, we have that facility.”
Of course, cash rich still requires prudence and any excess cash is invested in two ways. Lindner Finanz handles all short-term investments, up to one year, using instruments such as floating-rate debt and money markets. Longer-term investments are executed by a specially appointed external investment panel consisting of four managers, each from a different institution. It has a discretionary approach based on a medium risk profile. Its quest for a steady return (typically between 3% and 6%) operates within pre-set limits. A competitive environment, in which the performance of each manager is reviewed at three and six month intervals, keeps investments on track. Every few years the panel of four managers is assessed, Lindner setting up a “beauty contest” to decide which are retained.
With optimised processes, controls and technology in place, the major concern for Schädelbauer lies beyond the company walls. “At the moment the euro-crisis is something that I think about in terms of how it will impact on the business, but this is probably something that every treasurer is thinking about.” Action has been taken by Lindner to deflect the worst effects. Some operations, such as those in Slovakia and Spain, have been scaled back accordingly, yet the company has retained at least a skeleton staff and business function so that the units can be scaled back up again once the construction industry returns to form.
Lindner is fortunate in that its products and services can be deployed almost anywhere in the world. It has thus been able to move into new markets to try to offset the decline of others. Australia, Turkey, the GCC countries, Brazil and the US are all presenting new opportunities. “As a family-owned business, we can make quick and effective decisions, but as other companies move into the same regions the competition inevitably becomes tougher. We always have to try to predict how the business will develop when thinking about new possibilities.”
Looking to the future
Future-proofing a business is difficult, but Schädelbauer is certain that standing still is not an option. “Treasury is an evolving process and one idea I have is to develop Lindner Finanz into a clearing centre for the group, turning it into a real banking function, like a central bank for the group,” he reveals. He adds that although this ambitious project “remains a dream”, he is making provision for such an event.
Indeed, Schädelbauer takes his duties seriously and is keen to impart his knowledge for the benefit of others. He is a member of the German treasury association, Verband Deutscher Treasurer (VDT), has written many articles and is a seasoned speaker at various professional conferences such as Finance Symposium.
Since 2006 he has found time to volunteer for Caritas, an international relief, development and social service organisation. Schädelbauer manages the financial function of his local unit in the Bavarian town of Vilshofen. One of its roles is to help those with financial worries, maybe as a result of a bereavement or accident. “For me it is important to understand what can happen to individuals or families when financial circumstances change for the worse.”
Accepting that events can take over and that they therefore have to be approached with an ordered mind is a philosophical approach that is in part borne out of Schädelbauer’s devotion to the martial art of karate. At first glance this seems not to have anything to do with the role of the treasurer. But he takes the view that both require many years’ training to master the basics before developing a personal approach. “In the first stage you watch and learn and in the second you create your own way.” But the connection is more than just one of basic training. Karate, he explains, teaches patience, belief and core strength, attributes that any treasurer working in the current environment would do well to nurture.