The challenge
Following multiple rounds of acquisitions over the years, AVX’s banking and treasury organisation had become decentralised.
Without an effective central structure in place, cash balances were scattered across various markets in which the company operated, resulting in poor visibility and effective control of liquidity. Its operations in APAC were particularly suboptimal, with the company facing the following challenges:
- Decentralised banking structure; more than 100 accounts over 30 banking relationships.
- Ineffective use of liquidity, with idle operating balances spread across ten countries.
- Expensive FX conversion costs.
- Inefficient day-to-day processes for cross-border, tax and non-bulk payroll payments.
- Manual month and year-end account reconciliation.
- Limited connectivity between its APAC and EMEA operations.
AVX set out on a treasury transformation project to support its ongoing expansion, whereby it selected a single banking partner, J.P. Morgan to provide a full spectrum of cash, liquidity and FX services.
The solution
AVX mandated a regional cash management solution that leveraged a multi-entity, multicurrency notional pool (MEMCNP) in Hong Kong to centralise liquidity across all entities in ten markets in APAC through an automated two-way cross-border sweep structure.
To ensure restricted markets like China and Korea were included in the regional pool, AVX closely collaborated with the bank in obtaining regulatory approvals from the People’s Bank of China (PBOC) and the Bank of Korea (BOK) to move forward with the cross-border liquidity solution; AVX became one of the first companies to connect a Korean entity into a regional notional pool through automated cross-border sweeps. The sweeps structure in China is further supported by a domestic RMB cash concentration structure to pool liquidity across all legal entities in China into a local header account, including a newly acquired entity that was on-boarded during the implementation process.
The regional solution is equipped with multi-bank sweeping and reporting capabilities to facilitate the movement of funds between in-country third-party banks into the pool, while ensuring AVX has complete visibility into residual balances across its accounts. AVX is looking to further leverage the bank’s ‘follow-the-sun’ mechanism to fully integrate liquidity in its Hong Kong MEMCNP with the firm’s EMEA cash pool in Luxembourg, which will enable the team to seamlessly utilise balances across regions within the same day, and eliminate any loss of value of funds.
AVX can now seamlessly execute capital injections from its notional pool in Hong Kong or the US into restricted markets in APAC to effectively manage working capital.
Aside from the liquidity structure, AVX also deployed several digital solutions to overhaul its manual workflows.
Best practice and innovation
AVX sought a banking partner who could challenge the status quo and bring fresh ideas to overhaul its traditional treasury processes and meet the firm’s growing cash management needs.
The bank has a tailored approach that addresses the company’s unique needs across all entities in ten markets in APAC. The comprehensive structure includes a mix of thoughtful and innovative solutions that incorporate global liquidity structures, digital platforms and tools to address AVX’s pain points.
Key benefits
Significant annual cost savings through:
- Rationalising its banking structure and improving efficiencies.
- Enhancing FX conversion processes.
- Increasing mobilisation of trapped cash out of heavily restricted markets.
- Generating higher yields.
- Reducing significant man-hours.
- Improving visibility and control of liquidity.
“The end-to-end implementation was extremely well-coordinated. The transition from implementation to go-live was seamless and completed on time enabling us to mobilise cash across markets during the peak of the COVID-19 pandemic,” says Doug Knebel, Treasury Director.
Listen to podcast
