Photo of Felix Warmuth, Head of Treasury and Rodrigo Guerra, Head of Corporate Treasury.

Coordinating WCM levers delivers ‘win-win’ solution

The challenge

RHI Magnesita aimed to grow further, both organically and through acquisition. To support that growth, the company embarked on a mission to optimise working capital worldwide, freeing up cash for investments.

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Felix Warmuth, Head of Treasury at RHI Magnesita, and Rodrigo Guerra, Head of Corporate Treasury, based in Vienna, Austria, identified four key areas in which the company could ‘unlock’ cash and at the same time optimise its risk position.

Raw materials procurement: RHI Magnesita is a vertically integrated company which produces many of its own raw materials but also buys from external providers, especially in China.

Payables financing: there was potential to unlock cash in the supply chain through supply chain finance programmes (including credit card programmes in certain countries).

Receivables financing: global factoring programmes could deliver cash early, while also mitigating credit and late payment risks.

Special Export Credit Agency (ECA) backed financing solutions for customers: with support from the Austrian ECA OeKB, the company was able to provide a business solution to customers in higher risk regions which gave its customers the opportunity to extended payment terms and RHI Magnesita was able to discount the receivables immediately and in so doing also reduced its risk position.

The solution

In some of these areas, the merged company already had a track record. RHI was very strong on the factoring and receivables financing side and had a global receivables programme in place, whereas Magnesita only had a local one.

On the other hand, Magnesita was stronger in payables financing solutions and had local supply chain finance structures, as well as a global forfaiting solution specifically for raw materials. By combining the best of both and implementing new global working capital financing solutions, RHI Magnesita was able to ramp up these programmes from approximately €200m to €300m.

“We looked for a provider that could support the extension of these working capital improvements to all business areas and Bank of America, already the company’s banking provider in many key regions, was chosen as one of our main partners,” explains Guerra.

Best practice and innovation

A unique feature of RHI Magnesita’s working capital programme is that it is directly supporting business growth in certain regions.

For example, on one critical project in Ukraine, the company has used its credit insurance from the Austrian ECA combined with a factoring solution to provide payment terms of up to 360 days for its customers. The benefit for customers is that they can use the solution as an alternative to seeking external funding, which can be very expensive. On the other hand, RHI Magnesita, with its factoring programme, can discount those 360 days to zero.

This operational focus has meant the working capital programme has been delivering results from the very start, not just in terms of freeing up cash for the business but in supporting business growth in emerging and volatile markets and strengthening relationships with both customers and suppliers.

Key benefits

• • Cash conversion cycle shortened.
  • Previously trapped cash released.
  • Secured solid relationships with raw materials suppliers.
  • Payment terms improved.
  • Programme supports growth in other geographies.
  • Greater flexibility, negotiating power and enhanced relationships.

“Our programme shows what can be achieved when all the working capital levers are used in a coordinated way. Any one of the four components of the project would have delivered excellent results, but all four used together have freed up significant cash for us to use for our continuing expansion. The programme is an excellent example of a ‘win-win’ solution that offers benefits to all parties,” concludes Warmuth.

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