US corporates Arrow Electronics and Cummins Inc explain how they prioritised liquidity, digitisation and looking after their employees in 2020, speaking in a roundtable hosted by ING and in partnership with The Treasury Management Association of New York (TMANY).
Colorado-based Arrow Electronics, the specialist distributor of value-added services relating to electronic components and computer products, navigated 2020 with a keen focus on risk identification, liquidity and digitisation, said the group’s Treasurer William Dakin. Speaking at a roundtable hosted by ING and in partnership with The Treasury Management Association of New York (TMANY), Dakin said the company benefitted from a surge in demand for computing solutions as people switched to working from home.
Moreover, Arrow’s counter cyclical cash flows allowed the company to “sleep well at night,” throwing off cash by liquidating inventory and receivables despite the tough sales environment. The integration of new systems, put in place before the pandemic struck, also positioned the company to weather the storm with enhanced reporting and forecasting capabilities like more timely daily insight on the company’s cash position.
Elsewhere, a new account receivable securitisation in Europe (set up in partnership with ING) helped enhance working capital, providing access to lower-cost funding based on overcollateralisation.
In another timely innovation, Arrow had deployed an innovative AI machine learning filter that helped navigate the impact of the pandemic. The technology helps the company better manage its payments via an API hub that feeds into its TMS and then onto its banks, proving particularly useful in tracking down anomalies and any unexpected changes in payments. Regarding FX management, the company deployed a new application called FiREapps (now part of Kyriba) which has introduced onshore, competitive bidding of FX trades in controlled currency countries. Reflecting on the process, Dakin told webinar delegates it gives a new level of transparency. “It’s a great way of mining out from our sub-ledgers the FX exposure, and showing them to us in treasury in a central cockpit.”
Indeed, it is a centralisation drive that lies at the heart of Arrow’s treasury strategy where policies defining the way the company operates are shaped at a high level but enacted locally. “We have now got about 85% of our transaction flow running though our TMS. It gives us great global visibility and we can say with some confidence where we are with our cash and debt balances and our liquidity position.”
At Cummins Inc, the US multinational power technology group, 2020 has been all about liquidity. Assistant Treasurer Matthew Sullivan, sitting in the company’s global treasury operations and corporate credit division, was part of the team that put together an unplanned revolving credit facility followed by a bond issue in August to replace the RFC and ensure liquidity on hand. “We had a strong balance sheet, but we didn’t know what was ahead of us,” Sullivan told delegates. In a first response, the team put together an RFC to add to existing facilities if needed, but the pricing was higher than normal. “The pricing was higher in the market given the volatility than what we expected as an investment grade company, but we had to take action,” he recalled. As the market stabilised and liquidity re-appeared, the group went to the capital markets to replace the RFC, and add debt liquidity to balance sheet.
Sullivan also explained how Cummins’ treasury team helped finance the mass purchase of masks for employees in China. “We had to get people back to work safely,” he said. “Treasury worked to finance masks and get employees back into our Chinese factories. It was about freeing up cash and resources to keep the lights on.”
Looking ahead to 2021, digitisation of manual processes to provide a value-add to employees will continue to be a priority for Dakin. Cummins’ Sullivan plans to continue prioritising cash, championing a “cash is king, cash is excellence” mantra across the organisation. Elsewhere, the treasurers reflected on how they will continue to adapt to a work-from-home environment, while other 2021 priorities include the transition from LIBOR to SOFR-linked products and preparing for inflation. ING’s Head of Research Padhraic Garvey told webinar delegates it could be stoked by less trade friction and increased green spending as well as the giant US stimulus. Expect the dollar to weaken and non-dollar currencies outperforming, he predicted.
