Head of Cash Management
ALTANA AG, headquartered near Düsseldorf in Germany, is the management holding company for a global group of specialty chemical businesses around the world. The company’s roots reach back to the late 19th century, the passage of time witnessing its transition from a one-man business in Berlin, via a listed conglomerate, to a focused private company.
Today, ALTANA consists of four divisions: BYK Additives & Instruments; ECKART Effect Pigments; ELANTAS Electrical Insulation; and ACTEGA Coatings & Sealants. Worldwide, it accounts for more than 60 subsidiaries and associated companies, employing about 5,700 people. In 2012, ALTANA generated revenues of about €1.7 billion compared to the previous year’s €1.6 billion. Over 80% of group sales are derived outside of Germany.
It is the mark of something rather special when, as Aristotle said, “the whole is greater than the sum of the parts”. In industry, if individual components can interact to produce a result that somehow has more impact than they have individually, it can be a winning solution. The products created by the four divisions of Germany-based global specialty chemicals company ALTANA are parts of recipes used in its clients’ own products. Adding small amounts of these products to the mix can make a dramatic difference to the end result, and nowhere is this better seen than in the metallic flake added to paint products used by car manufacturers to such stunning effect.
A similar impact can be seen in the way ALTANA conducts itself as a company. The emphasis is on encouraging individual employees and functions to develop and be creative whatever their role, to add value to the business as a whole. Treasury, for example, is but a small part of the business. But in combination with the other units something greater than the sum of the parts is created.
The group is purposefully decentralised, looking to a lean structure in each division and unit to facilitate informed and quick decisions. Within this format, the intention is to leave as many of the financial functions, including treasury tasks, under local management as is practicable. Corporate treasury provides the boundaries and guidelines to which local operations must adhere (all foreign exchange (FX) deals and bank investments by local entities are ruled out, for example). Although handing over much of the day-to-day responsibility makes it “very interesting sometimes”, according to Corina Keller, Head of Cash Management in ALTANA AG, it has been a conscious decision “not to change something that is working really well”.
In fact, until 2008, ALTANA did not even have a central corporate treasury department. “We did not need it,” recalls Keller. “As a very cash-rich group in a good financial environment, the ‘itty bitty’ details of treasury were not yet priorities.” But in 2006, ALTANA’s strategy of specialisation and market leadership saw it divest its pharmaceutical division. Although the remaining group was still relatively cash-rich, the divestment depleted its cash income considerably, making it important to get a better grip on how much cash exactly the business had, distributed throughout the group and amongst banks.
Arrival and re-build
With the company acknowledging that one of the negatives of decentralisation is lack of financial transparency, Keller was brought in as Treasury Manager in early 2009 tasked with delivering the necessary focus. Armed with six years’ cash management experience gained at petrol retailer Petro-Canada (ultimately as Head of Cash Management), by March 2011 she had assumed her current position as ALTANA AG’s Head of Cash Management.
The role has a strong focus on global bank account management; understanding precisely which accounts are held with which banks and where, and monitoring cost, performance and risk are now daily concerns for Keller. She also makes certain that accounts are being used in the most effective and efficient manner by the business units, right down to ensuring signatories are complying with approval requirements (a ‘four-eyes’ security principle is applied across the board).
Short-term daily cash planning, mid-range liquidity planning and long-term forecasts also fall under Keller’s remit, with internal reporting up to the CFO. However, daily operational matters, such as making payments, remain fully de-centralised, corporate treasury only advising on payments policy. ALTANA’s treasury consists of only four people, one of them being the ‘dedicated’ trader who also manages the internal lending book and a part-timer helping with administrative work. The overarching finance unit within which treasury sits has other functions running parallel to treasury including finance and controlling, legal, tax and IT.
The structure of treasury within ALTANA has been shaped progressively since the arrival of Keller, her own role being “carved out” by the ideas for strategising operations that she brought with her. Bringing to the fore a range of new processes and procedures that would be good for the group as a whole, she oversaw their implementation, subsequent delivery and maintenance. However, she points out that in no way was this development a solo act. “It only works if there is a good relationship between all concerned. This doesn’t mean everything is always hunky dory; there are discussions – sometimes quite heated – but this is good; only if you feel passionate about something can you achieve the best goal.”
It is important that each person in the ALTANA finance team understands that they are a service provider – to the CFO, to the shareholder, to the divisions, but also to the other departments. “While we are all aware that we are service providers, everybody also tries to do their best for the department in which they work. We aspire to implement changes which overall have a benefit for the group that outweighs possible individual concerns. But, states Keller, “if treasury does not get along with the other departments then treasury is on its own and we cannot do anything; everyone is only a part of the bigger picture.”
Being realistic and grounded, she knows there are limitations to everyone’s level of expertise. Instead of struggling with the minutiae of hedge accounting or tax, for example, Keller is able to call upon the relevant experts within the business. Adoption of an open and available approach has, she notes, served her well in her career to date. By being the best treasury professional that she can be and by calling in the experts when necessary, she is offering the company the best of all worlds. This approach fits well with ALTANA’s decentralised structure because it acknowledges that local finance personnel understand their business environment better than anyone.
Handling the crisis
As an industrial supplier, ALTANA has obviously experienced the impact of the economic crisis – at first and through its own customers and suppliers – and has taken protective measures. It has weathered the storm well to date, but the economic slow-down has taught ALTANA a lasting lesson: that it is absolutely necessary to take a more stringent approach to cash management and to know at all times the group’s exact cash position and allocation.
“We put in place something we call ‘bank monitoring’, where we look at all non-core banks on a weekly basis and monitor their rating and outlook and then inform our divisions what we think the highest acceptable positive balance limit should be,” explains Keller. In some instances instructions have been issued to close an account and select another bank from a short-list of corporate treasury-approved institutions.
Regulatory pressure on the banks to sharpen up will eventually affect corporates in one way or another. Where deadlines are involved, as with the Single Euro Payments Area (SEPA) (and possibly the European Market Infrastructure Regulation (EMIR)/ US Securities and Exchange Commission (SEC) rulings on money market funds (MMFs)), being decentralised adds to that pressure, says Keller. Controlling all entities and ensuring they are compliant is a difficult path to tread. With SEPA, she comments on the need to instruct the entities to carry out the work and “to somehow get a status update and trust them that they have taken the necessary steps”. But, she adds, “I can’t really control it in terms of testing their work.” It is a concern “because no one wants to be in a position, come 1st February, where they cannot make payments anymore.”
In tackling SEPA, Keller believes the first issue raised by most companies was practical – could a payment file be produced out of their existing accounting system? “Having achieved this, people thought ‘we’re almost there’, only to realise that many electronic banking systems cannot handle SEPA files – and so now they need to upgrade.” For ALTANA, naturally she wants to ensure the whole group can still meet payment obligations with everything working smoothly.
Indeed, she sees SEPA as a major pain point for anyone currently working in cash management. “No one can be 100% sure it will work fine. You can be prepared – and with SEPA we are in a really good way – but I am still wary of coming up against the unexpected.” But surely SEPA will be worth the effort? “I don’t see financial benefits for the ALTANA group as we already had negotiated good prices with our banks and I don’t see that it makes meeting the value date that the recipient wants any easier because you could control that before,” Keller comments. “However, I do think it will be a lot easier for small businesses or people who are not professional cash managers because they will no longer have to worry about which process or module to use for different payment types.”
ALTANA uses SunGard’s Integrity treasury management system (TMS), alongside a couple of online banking systems that boast liquidity planning functionality. “We also use the most popular treasury system there is: Excel. I don’t think it is possible to get around it,” Keller laughs. Version-control issues have been removed because every process that should be controlled has been moved onto the TMS or online banking platforms; if critical data is changed, the rules-based environment requires at least a second person to approve the action. “If it’s used wisely, technology can help immensely in terms of efficiency,” she states. Indeed, the more technology is used, the more it is possible to automate functions (such as MT940 downloads, reconciliations or report production) that would otherwise be very difficult to do in Excel “unless you use a lot of macros and have someone who really knows what they are doing”.
Connecting ALTANA’s finance outposts to corporate treasury is via “share points” located on its Citrix servers. Using identical pre-formatted spreadsheets (as opposed to more expensive third-party software) each location reports to head office as required, adding comments on any deviations from the norm. Data can be automatically uploaded to the TMS removing the risk of manual data re-entry. ALTANA also operates two cash pools: one for euros and the other for US dollars. All US companies must participate in the USD pool. Some companies that are based in Europe but have significant receipts or payments in USD are also linked to that pool. Similarly for the euro pool, all companies that have their books in euro have to participate and any business outside that has a significant euro requirement can elect to have an account connected to the euro cash pool. Corporate treasury, acting as in-house bank, is the master account holder and all decisions as to what to do with the cash stem from here. Most cash is distributed within the group, paying the debts of one entity with the revenues of another, for example. With all overseas entities instructed not to enter into any treasury deals with external banks, inter-company loans go hand-in-hand with this model; getting the overnight rate (currently almost zero) on excess cash is not ideal, so the opportunity to invest up to one year with head office is often preferred.
ALTANA’s funding has for some time been based mainly on equity (it has a single shareholder) and syndicated loans. “After 2011 treasury looked at alternatives to merely a syndicated facility that could be flexible and easy for a small team to manage,” explains Keller. ALTANA found the ‘Schuldscheindarlehen’. There is no direct equivalent anywhere in the world but some describe it as a German variation on the private placement theme, carrying a fixed interest rate and floating element. “It works very well. It is similar in many ways to issuing bonds, but the only takers allowed are banks and they must buy them in large chunks.”
ALTANA has recently issued a €150m promissory note loan in March 2012 through the Schuldscheindarlehen. It followed this in July 2012 with a €250m syndicated credit facility which it is yet to drawn down on. For its recent $635m acquisition of Rockwood’s rheology business (completed in October 2013), it arranged acquisition finance, Keller explaining that this is a more flexible repayment option than the syndicated facility.
Future in the balance
As with most treasurers, multiple issues compete simultaneously for attention and priorities must be set. Being able to complete the major projects – such as SEPA – in good time is desirable, however, notes Keller, “if you wish to maintain the level of service that you provide to the entities, you cannot neglect the day-to-day business”. It is a balancing act and, as such, the typical Keller day in cash management is characterised by not knowing exactly what is going to happen. This may sound like a source of unrest, but she states that this is part of the reason why she loves the job. “Every day is different with new and interesting challenges being thrown my way.”
The next major project will be to handle the integration of the newly acquired companies. “It is a huge undertaking to acquire a company,” notes Keller. There will be a need to get reporting online, to make sure bank accounts are set up so that treasury can function with them until it can bring the companies into the cash pooling system. There will also be a need to introduce the new companies to ALTANA’s liquidity planning and long-term forecasting methods and a host of other processes.
“It is something that is going to take lots of manpower on top of what we are already doing,” she says. With the focus on working with so many overseas operations from the centre point of ALTANA’s corporate treasury, the aim for Keller is to “be a jack of all trades within the cash management world and be as good a service provider as possible”. As formulae for success go, this is as stable a base as any business could hope for.