The challenge
In November 2021, American multinational conglomerate GE made the decision to split into three divisions focused on healthcare, aviation and energy transition. The impending spin-off presented liquidity management challenges, particularly cash extraction and bringing GE HealthCare to a level of cash required to successfully spin-off. The new company also needed to create accurate forecasting to ensure it had the right mechanisms to manage its cash needs. This meant a new system to consolidate cash effectively and reduce fragmented cash, especially in markets with underdeveloped banking and regulatory challenges.
GE HealthCare operates out of 70+ countries, in 60+ currencies. The cash the business had to work with was spread across all these countries, currencies and 200+ legal entities. It was critical that the business had a highly robust mechanism of consolidating cash in each of the regions, and clear visibility at HQ over its many different international sources of cash.
The challenge was made more complicated by a short timeframe in which to achieve the necessary results. There was just a ten-month window in which to get the planning, implementation and execution achieved – with the eyes of global markets, media and investors watching this high-profile transaction.
The solution
To consolidate and streamline the multiple entities, countries and currencies, GE HealthCare created a regional multi-currency notional pool in Europe and a US dollar physical pool in North America. Partnering with J.P. Morgan, the company also set up a regional treasury centre in Singapore, with another notional pool to facilitate consolidation of cash in Asia. Under the solution, three pools interact with each other following time zones: in Asia, the cumulative cash position consolidated at the end of the day sweeps into the European pool which then sweeps into the US pool.
The US ends up with the fully consolidated global cash of the business, with any excess cash being invested. This structure allows the company to optimise its operational liquidity.
Making as much company cash accessible and available to GE HealthCare’s HQ from day one of the company spin-off was the ultimate objective. However, certain countries such as India and China have limitations around cash extraction due to exchange control regulations. This required an efficient mechanism in line with the prescribed regulatory guidance. For example, in China intercompany loans were setup, through which GE HealthCare was able to consolidate the cash in a short-term basis.
Best practice and innovation
A standout outcome of the pooling solution manifests in GE HealthCare being able to self-fund to meet its working capital needs. Funds have been available from early January 2023 when the company officially separated from GE after listing on the NASDAQ.
GE HealthCare’s forecasting process tracks rolling two-week and 13-week cash flows to ensure the cash position is monitored and understood at a granular level. This process highlights available vs unavailable pockets of cash, tracks liquidity needs over time and assesses the potential need to draw on working capital lines well in advance.
Thanks to the pooling system and advisory support of the company’s banking partner, the cash needs of the business – both at a central HQ and international level – are being monitored and met. This consolidation means pockets of otherwise unavailable cash are being utilised to meet the needs of the company, which is funding itself through globally generated cash.
“We’re excited and thrilled for this recognition so early in our journey as a standalone company. We look at this as a start, demonstrating the passion and expertise put in by our team to building a world-class treasury organisation.”
Shreeram Lakshmanan, Regional Treasury Director – USCAN
Key benefits
The hallmark of a good spin-off is the ability for the newly separated company to function independently and meet its own needs from day one of operation. Thanks to this solution, treasury operations of the newly minted GE HealthCare sprung into action at the launch of the separate entity.
The mechanisms and structures put into place ensured that on day one, GE HealthCare could focus on the monumental task of going live with a new business and preparing for a stock exchange listing.
GE Corporation has also been awarded Highly Commended Winner in our Top Treasury Team solution category.
