We speak to Jörg Wiemer, Senior Vice President and Head of Global Treasury, to better understand how SAP’s treasury department has weathered the financial storm, got to grips with the rigours of working capital management and fared in the capital markets.

Jörg Wiemer is Senior Vice President and Head of Global Treasury at SAP AG, responsible for global financial risk management, financial asset management, cash management, share buyback, financing, bank relationship management and working capital management. He directly reports to the group CFO.

Prior to joining SAP, Jörg was Head of Treasury and Investor Relations at a German stock-listed mid-cap company. Jörg started his career at Deutsche Bank where he worked as Credit Analyst and Relationship Manager for corporate clients.

Jörg holds an MBA from the Mannheim Business School, has a degree in business administration from the University of Frankfurt and is a Certified Investment Analyst (CEFA).

Headquartered in Walldorf, Germany, SAP AG is Europe’s largest software company. It is renowned for its innovative business solution software, most notably SAP Enterprise Resource Planning (SAP ERP) and its Business Objects suite.

The company, which is listed on the NYSE and Frankfurt stock exchange, has more than 100,000 customers in over 120 countries. Though it has almost 50,000 members of staff worldwide, it operates a streamlined treasury department from offices in North America and Europe.

In this article, Treasury Today speaks to Jörg Wiemer, Senior Vice President and Head of Global Treasury, to better understand how the treasury department has weathered the financial storm, got to grips with the rigours of working capital management and undertaken a number of capital market transactions.

A streamlined treasury

SAP’s Global Treasurer and Senior Vice President, Jörg Wiemer, runs a tight ship. With offices across the globe, you could be forgiven for thinking the company’s treasury operations would be vast and unwieldy.

True, treasury at SAP is a global affair – the department’s reach is transcontinental, with offices on both sides of the Atlantic. Yet the core SAP treasury team consists of just the 17 members of staff, spread over its front, middle and back offices. They are based in Germany, Ireland and the US. In addition, 43 employees are responsible for accounts receivable and billing in North America.

It was the diminutive size of the department that allowed it to retain its full complement of treasury staff during the financial downturn. Equally, when the economy picks up, Jörg says the department expects to promote from within. It is that kind of department.

Though small in terms of headcount, the treasury function has big responsibilities within the SAP group – even more so since Jörg’s lean team repositioned itself to assume a more strategic role in 2010. Its new responsibilities have meant that it has become a thought leader and a ‘centre of expertise’ at SAP.

The changes have meant that Jörg and his team now have the ear of the company’s board members and its CFO. It is not an insignificant change and has meant that the department is more than ever at the heart of the company’s operations.

Keep it simple

For a man faced daily with some extremely complicated tasks, Jörg has a refreshingly straightforward philosophy. “We like to keep things simple. We feel it’s important to really challenge ourselves as a department. We never accept the status quo,” he says. “Integrity, excellence, partnership, innovation and openness influence our culture within SAP, and especially within treasury.”

Jörg has had a chance to distil his department’s ethos since becoming Head of Global Treasury in 2005. In his role, he is responsible for the full range of treasury functions – from cash management and financial risk management to financial asset management and bank relationship management. Jörg directly reports to the group CFO.

Jörg started his career at Deutsche Bank as Credit Analyst and Relationship Manager for corporate clients. Immediately prior to joining SAP as Global Treasurer, he was Head of Treasury and Investor Relations at Douglas Holding AG, a listed German mid-cap company. He assumed his responsibilities as Global Treasurer at SAP in 2005, and was appointed Senior Vice President in the same year.

When asked to define the goals that drive his department forward at SAP, Jörg’s response, in keeping with his philosophy, is short and simple: “Vision and innovation. We never settle and we constantly challenge ourselves.”

This ethos has been put to the test over the past year. SAP’s treasury team has recently overseen a review of the company’s working capital management strategy, a process that has borne considerable fruit over the past 12 months, reducing working capital significantly.

Under the guidance of Jörg’s department, SAP has also undertaken a number of capital market transactions in 2010. While the deals have proved a success, they have prompted Jörg and his team to question the company’s lack of a credit rating.

In this interview, Jörg addresses these issues and many more from his vantage point as a global treasurer in one of the world’s largest technology solutions providers.

What changes has the department undergone recently?

We have changed together as a team to meet the challenges our department has faced. We have evolved from a pure transaction provider into a business partnership and thought leadership role. As a result, the treasury function at SAP has now positioned itself as a valuable partner for the senior management and a centre of expertise. We feel responsible for the whole financial value chain. We have also been able to disengage staff from operational tasks.

How were you able to disengage those staff members?

First, we established an in-house cash module, which automated our inter-company netting. This significantly reduced the workload. In the area of FX trading, too, we significantly reduced operational tasks because we now have straight through processing, which has lightened the workload of the staff in the front office.

With regard to risk management, it’s much easier to manage foreign exchange and counterparty risk because we have real-time access to data and reporting tools available. Before the system was in place, it was very difficult to upload and download data, which created more work.

As a treasury department within a company which provides treasury technology, you find yourself in an interesting position. Do you collaborate closely with your developers?

Definitely. We collaborate very closely with our partners. It is very important – not only in the day-to-day aspects of the business, such as within the admin and sales arenas, but also with our SAP development teams. SAP worldwide has more than 14,500 developers. Some of those developers are responsible for generating innovation within our treasury solution. We help them to deliver those innovative solutions to customers as well as collaborating with our sales colleagues.

As a treasurer at SAP you are able to shape new products and the next generation of software. The treasury team will often use the prototypes of treasury software, the developers have created, for many years before they are released to our customers.

Of course, we have first-hand experience of our treasury software so we can explain to customers better the advantages of using our software. We are our own reference customer!

Can you tell us what’s in the SAP treasury solutions pipeline?

One of the innovations in the area of the Treasury applications from SAP is the bank communication management software. This helps treasury departments streamline their communications with banks. When I say communication, I mean technical communication and payment execution processes. This is a product which we have been using within our own treasury department as a prototype for many years and it’s now available to our customers.

In addition there have been a lot of enhancements in the area of Treasury and Risk Management. For example there is the new Exposure Management where you could capture, group and net foreign currency as well as commodity exposures. These exposure positions could afterwards be used as hedged items in the hedge management as it is possible to calculate risk key figures on the exposure positions.

Another example of ongoing innovation is the correspondence framework where outgoing correspondences can be generated, incoming counter-confirmation can be uploaded and automatically matched, the deal will be updated with this information and automatic settlement can be done.

The latest addition to our treasury solutions’ portfolio is financial risk management for commodities, which includes exposure management and transaction management as well as hedge and risk management for commodities.

What are the challenges you have faced over the last 12 months?

We have faced a number of challenges, which have enabled us to show excellence across our treasury disciplines. Cash management, foreign exchange and risk management have posed challenges recently. We have made progress on all of them and we have had some funding transactions.

In terms of cash management, as I mentioned earlier, we established a so-called in-house cash system. This is a type of automated, inter-company netting. We were also able to optimise our global payment factory, using the SWIFTNet SCORE model.

With regard to our foreign exchange transactions, we have deployed a multi-bank trading platform called 360T. We have been able to build a state-of-the-art direct interface between the trading platform and the SAP treasury management application. The interface is based on the latest available treasury technology. Its main advantages are speed, automation, and straight through processing (STP). The software also helped us to reduce the number of potential errors, which can happen during manual deal capturing. It’s very simple for the dealers – they have to go to the 360T trading platform; make the deal there with one mouse click, and everything else is automated for them.

In the field of risk management, the crisis showed that transparency is key and that it is important to have quick access to integrated data. To that end, the team has developed a new reports system, which went live last year. So we now have full transparency on our counterparty risk check – on the bank side especially. We now also have real-time reporting on our global foreign exchange exposure in all currencies and in all subsidiaries worldwide.

On top of that, last year, I was asked to manage a global working capital project.

What did that involve?

We established seven sub-projects and some of my direct reports were responsible for leading these. We improved billing accuracy and streamlined our cash collection processes worldwide. The project was a great success and we were able to show where capital was blocked in various parts of the business. We managed to unlock a significant amount of capital and increased the company’s cash flow significantly – in 2009, free cash flow increased by €970m, or 53% year on year, which was partly a result of the project.

While the treasury is responsible for SAP’s working capital optimisation project, this cannot be done from an ivory tower. In order to facilitate the project, we established web-based working capital dashboards within the organisation to improve working capital and to create awareness of the working capital topic within SAP. We adjusted SAP’s compensation structure and linked employee bonuses to working capital improvements and cash flow generation.

Headquarters of SAP AG, located in Walldorf, Germany

It’s also been a busy time for your capital market team recently, hasn’t it?

Yes. We did several successful capital market transactions last year. First of all, we have refinanced our revolving credit facility. Due to the strong demand for participation we were able to increase the volume from €1 billion to €1.5 billion. We did this in September 2009 when conditions were tough.

In May this year, we acquired Sybase, a leading provider of information management, analytics and enterprise mobility solutions. The purchase price was over $5 billion. We established a term loan of €2.75 billion to finance the deal with two banks. We are currently in the syndication process.

Also in 2010 we entered the corporate bond market for the first time in the company’s history. We had our debut bond transaction in March and issued additional unrated bonds in August. Both transactions were very successful. Investor demand, especially for our inaugural transaction, was overwhelming and when it finally closed it was the tightest unrated deal ever priced – relative to market level.

And finally we have just completed a US private placement.

You haven’t been put off by market conditions, then?

No. We saw very attractive market conditions in the US private placement. We did road shows in four American cities and saw strong demand for SAP’s credit profile. The timing of the transaction was important, too.

What lessons have you learnt in the last year and what recommendations would you make to other treasurers considering similar projects?

Here are some key aspects of successful working capital management (WCM):

• WCM is an important value driver; this has to be communicated within the company to create awareness.
• WCM has to be part of the company’s DNA.
• Successful WCM is teamwork across the company.
• Internal incentive structures (eg employee compensation) have to be linked to WCM.
• External incentive structures (eg motivation for customers to pay) have to be linked to WCM.
• Process standardisation (especially order to cash) is value creative.
• Integrated Working Capital Management Dashboard as reporting solution and instrument for performance tracking is important to establish.
• WCM requires permanent attention – WCM is an ongoing effort, not a project.

Finally, what does the future hold for SAP’s treasury department?

We started another working capital project with different focus areas this year and I am responsible for this, together with two colleagues. This is mainly focusing on process improvements and on further improvement of DSO and cash collection processes.

We have to improve across all treasury disciplines again. We are on a journey and there is still some room for improvement in cash management, risk management, foreign exchange trading, and also in the funding side of the business.

As I said before, we are a small team – just the 17 staff. So staffing stability is always important. There were no cuts made during the financial crisis and we don’t want to grow the treasury team, but allow our current staff to improve efficiency using our own treasury solutions. Our team is highly professional and dedicated to supporting our company’s strategy and creating SAP’s future. For me, working with the team is a great pleasure and I am looking forward to reaching more milestones in 2011.

The plan for the next 12 months is to take the next step of the journey – to further globalise and further standardise processes. We also hope to further strengthen our position as a business partner and thought leader.

Credit rating is always a topic for SAP. To get an external rating is a question of timing. We were able to access the debt capital market without a rating in a very successful way, but we constantly challenge the decision not to have an external rating. The rating improves financial flexibility. That is good. If we feel we need that flexibility, then we’ll give it a higher priority than it has now.

The rating process creates a lot of work. You need a lot of internal resources to get the process done. The question remains; when is the right time to invest these resources in getting the external rating?