Photo of Mirko Kluge, Deutsche Bank and Denis Bräuer, Element Solutions Inc.
Element Solutions Inc. is a US-based chemical manufacturing company with worldwide operations, including significant business operations in Europe. Its global operations turned net sales totalling US$2bn in 2018.
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As part of its bid to strengthen its European presence and promote growth in the region, Element Solutions Inc. (ESI)/Platform Specialty Products (PSP) made a series of major acquisitions between 2013 and 2018, including Etec Crop Solutions in New Zealand (May 2018); OMG Malaysia (January 2016); Alent (December 2015); CAS (November 2014); and MacDermid (October 2013).
The acquired companies left a legacy of disparate account structures, with almost 20% of accounts held in non-operational currencies for ESI/PSP. This left ESI exposed to numerous FX risks, while the sheer volume of accounts – linked to various different electronic banking systems – complicated central user administration and controls, making cash management inefficient and costly.
Over a ten-month period, the team at ESI (formerly PSP) worked with Deutsche Bank to build an entirely new treasury structure for the company’s Western European operations, incorporating 150 accounts for 90 legal entities.
The set-up has been designed to increase visibility and real-time control over all bank accounts, while incorporating Sarbanes-Oxley (SOX) implementation and simplifying the feed into ESI/PSP’s treasury management system (TMS). In addition, the solution has led to an easy carve-out of business lines and simplified the integration of new acquisitions.
To rationalise these accounts and mitigate its FX exposures, PSP decided to build an entirely new treasury structure for its Western European operations. This required the creation of 150 new accounts for over 90 entities, with cash concentration hubs in Amsterdam (EUR) and London (GBP and USD). Each entity of the group holds an account in its respective functional currency only. This minimises FX exposure for ESI/PSP, without straining its relationships with business partners operating in other currencies.
ESI/PSP also adopted the FX4Cash solution, which converts incoming and outgoing payments instantly, with each transaction time and date stamped to provide total visibility over the conversion rate. This process also has completely transparent costs, with every conversion incurring the same pre-agreed spread.
The new structure furthermore incorporates a zero-balancing cash-pooling structure, with nightly sweeps to the ESI/PSP hubs to facilitate better visibility and more accurate cash flow forecasts. Account information is provided by an app and fed into the ESI/PSP’s TMS to obtain a complete overview of cash and liquidity positions across the firm’s European activities from end-to-end.
Since the new treasury went live, ESI/PSP has benefited from a streamlined account structure for its Western European entities. It has already cut the number of legacy and third-party accounts it holds by 55%, and could cut them by as much as 60%, bringing the total down from 520 to 208. The cash-pooling structure has enabled ESI/PSP to release US$65m in previously trapped cash.
The rationalisation has also drastically improved interoperability and minimised the company’s FX exposures – generating a total of 40% cost savings across cash and liquidity management operations.
ESI/PSP has also benefited from improved control over its treasury management processes, with the eBanking system providing an accessible, functional interface. This includes an intuitive dashboard that reports up-to-date account figures and gives ESI/PSP’s treasury team an instant picture of its overall liquidity positions. In addition, ESI/PSP is using advanced treasury management tools to improve group-wide controlling and cash forecasting.
Following the successful implementation of this new treasury structure, ESI/PSP engaged the same team to expand its treasury integration and streamline its main operations in Central and Eastern Europe.