Chaoqun Gao began her treasury career at Redcats S.A. in Paris, France in 2006. Two years later, she moved back to her native city, Shanghai, to take up the reins of Finance Supervisor at Wilson Engineering Ltd. Then in 2011, Gao became Treasury Manager at Heraeus Shanghai Management Consulting Co. Ltd (Shanghai). Since this interview was conducted, Gao has been appointed Senior Financing and Treasury Advisory Manager for Heraeus Holding GmbH (Hanau, Germany).

Although not necessarily a household name, as it is largely involved in the B2B business and doesn’t actually target the end users, Heraeus has an excellent reputation in the precious metals and technology industry among its peers, suppliers and customers worldwide. Business operations are largely focused in three regions: Germany, where the headquarters sit, and the US and China, where two separate regional hubs have been established.

During 2011, Heraeus divided its former precious metals business group into two business groups: precious metals and materials and technologies. Following the completion of this project, the precious metals group continued to thrive from the sustained positive market development for products for the photovoltaic industry. The strong demand for products for the automotive industry and the healthy economic situation in Asia allowed the materials and technologies business group to achieve similar positive returns.

To maintain this profitable and sustained growth in years to come, Heraeus commenced a series of initiatives and projects during 2011 aimed at modernising and harmonising its structures and processes across the entire group structure. Its ‘Magellan Programme’, for example, was launched at the end of 2011 to address the comprehensive standardisation of the company’s global business processes on the basis of a uniform IT platform.

“At the time, we wanted to see if we could include a local bank into this core concept too but we had three main criteria that we had to adhere to in the selection of our core banks that none of the local banks lived up to.”

Although Heraeus expects overall economic development to be stagnant or at least slightly lower for the year 2012, the company plans to further develop the business in the automotive electronics, telecommunications, medicine, steel, semiconductor and environmental technology industries. In addition, the company is forecasting the expansion of its activities in China, where the company has more than 15 legal entities and its relatively new regional centre covers six of the company’s seven business segments (medical is not yet covered by the Chinese hub).

Founded on 17^th August 2009, the Chinese regional centre and its corresponding treasury function have had the opportunity to build up its processes from an entirely clean slate. Chaoqun Gao joined the Group on 1^st January 2011 as the inaugural Treasury Manager for the China hub. Everything is on track, according to Gao. Let’s take a closer look.

Building the treasury from scratch

Simultaneous to the opening of the new regional centre in China, Heraeus also took on a new Group Treasurer (André Christl) who has been extremely determined in re-organising the entire global treasury structure of the company over the last three years. As part of this revamp, he introduced a new concept concerning treasury financial management and the selection of a small number of core banks.

Previously, the headquarters in Germany had relationships with an array of global banks but the group had come to realise that this banking approach was not very efficient for the business. An overwhelming number of banking partners meant that the firm was decentralised to each bank, according to Gao, and so this core bank concept was a welcome resolution. “According to certain agreed criteria, we have now chosen our core banks that we intend to develop a wider relationship with on a global basis. With these core banks, we are able to centralise all of our dealings and achieve very favourable terms as regards financing (as we get very good price quotations).”

As a global company, Heraeus rolled out this core bank concept first in Germany, then in the US and lastly in China. For the Chinese implementation, (which began in H2 2010 and was completed by H1 2011), the main issue was deciding which bank or banks to choose. Heraeus had already established a global relationship with the shortlisted pool of 13 – mostly international – banks, some of which already had financial partnerships with operational and regional hubs in Europe or the US.

Although this project was run by HQ Treasury, the regional centre in China assisted by contacting banks for RFPs, which contained proposals of cash management services from the banks and their pricing quotations. According to Gao, the China hub wanted to invite some local domestic banks to contribute to the catwalk competition. “At the time, we wanted to see if we could include a local bank into this core concept too but we had three main criteria that we had to adhere to in the selection of our core banks that none of the local banks lived up to.” The criteria were:

• Participation in the syndicated loan granted to Heraeus Holding (as an entry ticket).
• Rating of at least AA-.
• Pricing. By inviting the banks to outline their proposals as to how they planned to facilitate Heraeus China’s cash management needs, what they could offer as regards preferential financing solutions etc, comparisons were then made with pricing, processes, and concepts, allowing the best decision to be made.

Changing structures

This concept of a core bank framework has been part of a larger overhaul of the structure and relationship of the company worldwide, says Gao, with headquarters taking a far more centralised approach. “Before, the treasury function was always very much focused on the German business – they didn’t think of global treasury management. But they have now changed this mindset and they are contacting the global subsidiaries to understand what they are doing and what their needs are. They have also become very involved in the re-centralisation of the hedging business and all the financial negotiation arrangements.”

Another major change has been the drive to optimise all of the daily treasury operations. The latest reorganisation ensures that Heraeus treasury centres always have a front office that will get into contact with its regional legal entities for the day-to-day activities, take care of rolling out group projects and carrying out different transactions, such as daily financing/investment execution according to cash disposition, hedging deals, etc.

There is also a middle office that takes care of the risk control and reporting issues and then a back office which is essentially a centralised payments factory. Working for the regional centre in China, Gao’s responsibilities keep her mainly in the front office, implementing group standardisation regarding treasury management. She is also tasked with making sure the Chinese entities use the regional centre and “ensuring that the subsidiaries are familiar with the advice, services and assistance that are available to them”.

Within this regional hub itself, the various departments work together very closely to achieve process optimisation. This is particularly true of the legal and tax departments as any corporate doing business in China faces many complicated regulatory and tax issues. Says Gao: “For example, the treasury and legal functions work very closely whenever a credit facility is involved. We discuss internally to agree on appropriate terms and clauses, and realise the negotiations together with the banks.”

Heraeus is currently involved in a large project that aims to standardise the IT systems of all regional centres and subsidiaries globally, meaning that SAP will be rolled out in five years as a standard system.

“For tax issues, it is also important to have developed a good cross-functional bond, as there are situations which involve dealing with inter-company financing positions. We need to gather the relevant data from treasury and discern the credit positions of all subsidiaries. In some cases, we might even try to make some short-term investments. Either way, these various credit scenarios bring with them their own tax implications where we need expert advice and support,” she says.

Playing their part in the company’s new centralised approach, Heraeus China has also been focused on building region-wide RMB cash pools to have access to and allow the optimisation of cash positions across its subsidiaries in China. Before the treasury function was developed here, every entity was only looking at their own cash situation, according to Gao.

There was no general overview for the cash situation in China. “Even when our cash pool was built up four or five years ago and there were a limited number of participants, so cash efficiency was not really improving. Everyone needs to participate in order to make it effective. As a group therefore, we have pushed all of our subsidiaries to join a cash pool and we have encouraged them to use it for their main bank account for payment and cash receipts.”

Currently, the region’s financial position is quite a healthy one: the balance of an amalgamation of cash surplus and cash shortage between the different legal entities. Based on this centralisation of cash positions and the receipt of cash forecasts from the legal entities in the region, the centre is then able to better prepare a sufficient financing arrangement for financing requirements across the region where necessary.

Regional developments and challenges

From a group perspective and as outlined earlier, Heraeus is currently involved in a large project that aims to standardise the IT systems of all regional centres and subsidiaries globally, meaning that SAP will be rolled out in five years as a standard system. Finding a common system that would work for all stakeholders was no mean feat, but the benefits it will bring are significant.

Technology and processes aside, Gao feels progress is being made in the regulatory space too. The financial market in China is already opening up and it is making a big difference to the business environment. During the last two years, for example, China’s State Administration of Foreign Exchange (SAFE) has released several regulations and circulars (such as the opening up of cross-border RMB transactions) rendering the financial environment of China more and more international and flexible.

While no one can assess exactly at what speed, the deregulation of the Chinese market is something that many corporates in the region are quite optimistic about. Furthermore, despite the fact that treasury is really a relatively new function in China – in comparison to areas such as accounting or controlling – Gao remains quite positive for the talent pool available to the company as their treasury matures.

“According to recent market information, there are some really good candidates with experience in treasury in our region. We would prefer to recruit from the local market as the treasury position in China is much more complicated than the US or Europe. For example, with our complex regulations, if we recruit a Chinese treasurer, they are more capable of doing the appropriate research, allowing them to be up-to-date with the relevant regulations instantly and so on.”

One reason for the seemingly positive market for treasury talent is the fact that the Asian hub is situated in Shanghai – which is fast becoming a hotspot for the ambitious financial elite. Recently released as part of the national strategy, the Chinese government has announced its intention to mould Shanghai into an international financial centre by 2020. This will create a resource pool that will be crucial for Heraeus going forward as the treasury department is the most important aspect of the company to be developed in the region, according to Gao.

Top of the agenda

Moreover, the Asian region continues to be key for the company – and that trend only looks set to continue. After all, amid the ongoing sovereign debt crisis, the European economy is in danger of lapsing into another recession. And potentially reduced growth rates in newly industrialised countries, renewed tensions in the financial markets, and price increases for important raw materials could negatively affect revenue in some markets. With its headquarters based in Europe, Heraeus is therefore aware that the growth rates for sales and earnings may not continue as they have done in previous years.

Heraeus China has also been focused on building region-wide RMB cash pools to have access to and allow the optimisation of cash positions across its subsidiaries in China.

This is where the growth potential of Asia comes in. Gao tells us what projects the China regional centre has planned for the coming months and years: “We intend to build a payment factory in China, or rather a shared service centre (SSC) for finance. Bearing in mind that this regional centre will eventually be aligned with the German headquarters, we have a focus on centralising our accounting services and streamlining payments. We also want to set up RMB inter-company transactions, including RMB loans. In addition, if the restrictions loosen up enough, we would like to establish a foreign currency cash pool.”

These developments may not appear terribly dramatic from a global treasury perspective but as Gao says, “It may not seem remarkable to our Western colleagues but these changes are new for us. We look forward to the exciting period ahead.”