Sime Darby’s challenge is to efficiently hedge and fund forward payments to car suppliers that enable the costs to be locked in, provide more accurate forecasts to management and ensure market trades (FX and financing) are executed at fair market prices. The response is a cross-asset pre-trade analytics solution.
Photo of James Hayward and Chan Man Wai, Sime Darby Motor Group (HK) Ltd.
Sime Darby is a Malaysia-based diversified multinational with operations in 25 countries and four territories and a total workforce of more than 120,000 employees. The group is involved in five core sectors, namely plantation, industrial, motors, property and logistics.
Risk solution to forward supplier payments in different currencies
The treasury function of Sime Darby Motor Group in Hong Kong supports the motors business in China, Hong Kong and Macau.
A core function of treasury is to manage the financial risks associated with accounts payables with major global car suppliers – both from a foreign exchange (FX) and short-term financing perspective. The challenge is to efficiently hedge and fund payments to car suppliers that enable the costs to be locked in, provide more accurate forecasts to management and ensure market trades (FX and financing) are executed at fair market prices.
Thomson Reuters cross-asset pre-trade analytics has been employed to quickly and accurately determine fair market value of FX forward contracts utilising trusted calculators and unbiased market-data. The same platform is used to accurately assess ongoing mark-to-market exposures arising from hedge trades that help manage cash flow estimates. Market IBOR benchmarks rates and FX forward prices are compared and recorded against bank executed trades to benchmark pricing performance. For efficient automated pricing and trading of FX forward contracts, the partner’s FX trading solutions have been employed to ensure competitive pricing across relationship banks. The intention with the partner’s capabilities is to further automate the trading workflows by extending use to automated matching and settlement (via SWIFT connectivity).
Best practice and innovation
The major financial risk that treasury needs to manage is the forward supplier payments which are in different currencies (JPY, EUR and USD). Treasury employs a range of best practices to better manage this key risk:
Review/benchmark risk management trade prices between market and bank prices. This is achieved by comparing the FX forward contract and IBOR prices from the solution partner’s platforms versus the bank’s prices, and then negotiating for better pricing.
Revalue hedge trades EOD/EOM.
Automate FX forward trading on multi-bank electronic trading platforms at best price across relationship banks.
Extend future use of the platforms to include electronic trade matching and settlement.
“Establishing treasury best practice involves having the right process, right know-how, right partners and the right benchmarks in place to be efficient and scalable in supporting business needs. Financial risks associated with payments to our suppliers is a key risk so treasury needs our risk management practices to be rock solid. The treasury team has implemented a best practice risk management process involving market price benchmarking and automated trading services, which help to meet our business commitment,” says Chan Man Wai, Treasury Manager.
“Being recognised in the profession across Asia is an exciting moment, and winning an Adam Smith Awards Asia really means a lot. To the team, it means our work is among the best in class, and has been recognised. To the company, it means we have the right processes and partners in place. The solution we adopted does not only help mitigating risks but also translates into bottom line savings.”
Better pricing across FX forward contracts and short-term financing reducing the overall cost to the business.
Automated multibank request for quote for forward contracts enhance control and efficiency.
Better negotiating power with banks for trades (FX forwards and short-term financing).
Documentary evidence to show that treasury is executing hedges and financing at best market pricing via benchmarking against prices.
Accurate ongoing mark-to-market of hedge book for independent revaluing.