Lenovo’s team is deserved winner of Top Treasury Team accolade
The challenges
The current market saturation of the hardware business has challenged Lenovo. The company stands out, having repositioned itself from a personal computer (PC) seller to a multi-faceted international technology giant, keeping itself relevant in the fast-changing environment.
Owing to the size and varied technology businesses, Lenovo has, over time, created a unique global treasury model based out of Singapore to handle the complex operating model across its global footprint. It is a Chinese-parented multinational with a true global mind-set and work ethos.
Damian Glendinning, Global Treasurer is chief architect of Lenovo’s treasury. He says, “Lenovo takes pride in having an international treasury outlook which has helped the company in being razor-focused as well as evolving with the changing business and economic environment. Our model in many ways is different from other developed or Asian corporate treasury models. We have a lean global treasury team, which is responsible for overall treasury management comprising 15 people which run all 60 countries centrally. There are only two people outside Singapore in North and Latin America markets supporting them locally on account of regulatory and market constraints.”
To give some perspective, Glendinning leads the group’s global effort on treasury covering working capital, capital markets, cash management and FX operations, among others. Lenovo’s treasury is responsible for managing US$3bn of cash, US$3bn debt and US$3.5bn in working capital. Lenovo has annual flows of US$80bn and more than 2,000,000 payments and collections (including FX settlements) to support a global top line of US$43bn.
The lean treasury team at Lenovo
Global treasury operations – (based in Singapore) – led by Joseph Chua
Global treasury operations are responsible for the overall group’s management of banking operations across the 200+ entities covering four regions and about 70 banking partners with more than 800 bank accounts. This group is responsible for liquidity management, cash flow forecasting, supplier payments, collections and bank account management.
Working capital financing operations – (based in Singapore) – led by Sriladda Chalermkarnjana
This is a strategic group and an integral part of Lenovo’s treasury, focussed on working capital finance. The team works closely with commercial teams for order monetisation, counterparty risk mitigation, capacity creation with distribution network by early cash-in and other bespoke solutions. This team also works cohesively with supplier side teams on opportunities for cost as well as payment terms management with their global supply chain.
Capital markets operations – (based in Singapore and Hong Kong) – led by Keith Wong
Working on the capital structure and continuously looking for opportunities to refine the debt mix is a key priority. The team manages a debt book of US$3-4bn and taps various kinds of market instrument for financing the core funding requirements of the group. This year to date Lenovo has tapped the capital markets for US$500m of long-term senior debt and US$1bn of perpetual debt securities.
FX operations – (based in Singapore) – led by Joseph Chua
This group manages the overall currency and interest rate exposures. Given the global scale, there are numerous currency pairs involved in Lenovo’s business operations with varying regulatory regimes. The basket of currencies ranges from G3 to emerging markets as well as exotic pairs in Latin American and Africa, thus this team runs ‘round-the-clock’ to manage currency volatility risks and implement a consistent hedging programme for all its exposures. The monthly turnover for its currency hedging programme exceeds US$6bn.
SSC operations
Timely execution and robust controls require strong operations teams. Lenovo’s shared services centre is a crucial base on which the treasury structure is built. It oversees the group’s global payment processes as well as collections and reconciliations.
In the past two years, Lenovo has doubled its efforts to pivot the company to manage market headwinds and re-position itself beyond PC into servers, cloud, mobility and software. While PC remains core and Lenovo continues to be a market leader, due to overcrowding as well as market size contraction, pressure has been put on margins. In order to support and complement its organisational mandate, Lenovo’s global treasury embarked on a transformational journey to redefine its priorities, platform and productivity.
In the last 18 months, they have swiftly built a scalable treasury infrastructure capable of delivering value and efficiency. Lenovo has successfully deployed treasury solutions to augment simplicity and efficiencies of its operational processes. A few recent initiatives in liquidity management, working capital management, treasury integration and restructuring, capital structure and debt management have proven extremely effective during the company’s restructuring.
The solutions
Throughout 2016 and 2017, Lenovo’s treasury has undertaken the following projects to align with the group’s overall strategy.
Bespoke global liquidity structures
With operations in more than 60 countries and products selling in 160 markets, a big challenge for Lenovo is to gain instant visibility over its cash flows across the globe. The second challenge is the right deployment of the cash for its most efficient end use, given capital convertibility regulations in each operating market. Over the years, Lenovo has built a strong automated infrastructure for management of liberal currencies through an “against the sun” global sweep structure involving 16 countries and eight currencies. In this phase, they explored and executed bespoke solutions in emerging markets, which are fast-growing and generate sizeable cash. Target solutions like Prestacao in Brazil, automated structured deposits in India and advances for import in Turkey have truly maximised their cash efficiency. They worked to enhance the return on cash by actively managing the global pool header account and deploying long-term cash for debt repayments and short-term cash in liquid money market schemes via an online tool. These structures have helped Lenovo in counterparty risk management, liquidity optimisation and added profit and loss of US$28m of interest income for the US$3bn cash under management.
The group leverages a global re-invoicing centre in Hong Kong which further concentrates external payment flows, thereby improving cash forecasting and offers a predictable investment policy.
Synergies from treasury integration in period of restructuring
Lenovo has been working to restructure its business offering and internal organisation, including corporate spin-off, diversification and ownership reform. In the last 18 months, Lenovo sold off non-core assets across its global footprint and executed Project Giant, to put its server business into separate legal entities, integrate Motorola Mobility and have recently begun ERP migration to Lenovo global ERP (SAP). These changes required restructuring of all treasury touch points from new account opening, setting parallel liquidity structures, payment infrastructure, collections framework, cash flow reporting and many others. Lenovo underwent a vertical and horizontal integration with a sense of urgency, requiring front-to-back re-organisation from policy, process and systems perspectives. An important element of their success was the company’s model of being highly centralised, controlled and using fully digitised execution. A very high percentage of Lenovo’s payments, collections, FX contracts, liquidity and reporting are fully driven through digital channels. The company has implemented solutions such as a payments factory with harmonised file formats and host-to-host connectivity, thus paving the way for an agile treasury model.
Working capital efficiency
As Lenovo continues its global expansion and focus on restructuring, its need for working capital to support its business growth and deleveraging has grown considerably. Lenovo’s working capital management team adopted a targeted approach to focus on both sides of their balance sheet, reducing the sales cycle (DSO) and extending the payments cycle (DPO). These goals required tailored solutions to fund Lenovo’s working capital goals. Key solutions implemented in the last 18 months have resulted in incremental working capital efficiency of US$925m. Measures for DPO extension account for nearly ~US$2.3bn. A letter of credit (LC) based supply chain solution for Lenovo’s largest supplier, Intel, has scaled up to US$800m with Lenovo’s core global banking partner. Open account supplier finance solutions for various Chinese ODMs and component suppliers with a size of US$1bn and for US-based global supplier with a size of US$500m have also been established.
