The challenge

Upon acquisition, Cytiva assumed greater ownership of its own treasury policies and processes. The company undertook a treasury review which identified that a material number of intercompany invoices were being settled up to 30 days after origination and sometimes later. This introduced significant FX exposure and, therefore, volatility to its balance sheet. In addition, examination of intercompany accounts payable (AP)/accounts receivable (AR) flows revealed that Cytiva could reduce its 37,000 annual FX transactions and US$5.6bn gross FX exposures by implementing a multicurrency netting programme, resulting in significant transactional and FX spread savings.

This was a worthwhile endeavour with the potential to revolutionise Cytiva’s intercompany process, but only if it could be achieved without disruption to the business units’ existing banking infrastructure, and without increasing the administrative burden to the company’s lean treasury team.

The solution

The FX netting solution uses technology to aggregate gross intercompany payments, resulting in net FX trades and payments to settle obligations between netting programme participants. It introduces structure and automation to ensure intercompany invoices are settled regularly and efficiently.

Key to achieving the required outcomes was a centralised and automated workflow which would be sustainable for the long term.

Alongside the automated process, Bank of America (BofA) deployed guaranteed FX rates, held for a period of four hours. This allows Cytiva to calculate its final net intercompany positions for each participant at the same rate at which it would execute the trades, ensuring participant settlements exactly match to FX trades.

This ensures there are no residual balances left at the netting centre and removes the ‘accounting noise’ resulting when FX gains and losses arise from a mismatch between the netting calculation rate and trading rate.

In addition to greater control, automation and a reduction of FX exposures, it was critical that Cytiva also minimised the impact on the underlying business units. Accounts were opened in the 13 currencies needed for the netting centre at BofA. However, accounts for the business units remained with the company’s existing banks, either at third-party banks or BofA, globally.

Regardless of account location and underlying bank, the solution automatically debits the business units’ accounts for net payers to the netting centre and credits the accounts of those net receivers. This ensures no manual intervention is required from the business unit after invoices are submitted and approved, allowing the netting programme to operate and settle efficiently. Any administration relating to the netting programme, including implementation, testing and ongoing management, was managed by Centralis (a treasury services provider) on behalf of Cytiva.

Best practice and innovation

Whilst many companies typically run monthly netting cycles, Cytiva identified it could further reduce gross FX exposures by settling invoices more frequently, further reducing balance sheet risk. Netting more frequently reduces the time between closing one cycle and opening the next, which would not be feasible without automated reporting between the bank’s netting solution, powered by Coprocess, and Cytiva’s single central ERP.

In part, this is what makes the solution unique as it is a four-way collaboration between Cytiva, BofA, and the software and service providers, delivering a fully automated weekly netting process.

Key benefits

• Cost savings.

• Headcount savings.

• Process efficiencies.

• Return on investment (ROI).

• Increased automation.

• Risk mitigated.

• Improved visibility.

• Errors reduced.

• Number of banking partners/bank accounts reduced.

• Manual intervention reduced.

• Increased system connectivity.

• Future-proof solution.

• Exceptional implementation (budget/time).

• Quality accreditation achieved.

• Improved key performance indicator (KPI) metrics.

  • 94% reduction in FX volumes.

  • 71% reduction in settlements.

  • 93% reduction in FX trades.

  • 40 hours per week redeployed to more value-adding tasks.