Perspectives

Corporate View: V N Shankar, Rexam

Published: Jan 2014

V N Shankar

Head of Finance and IT

Rexam is a global leader in packaging. With 67 plants in 24 countries across Europe, North and South America and the Asia Pacific rim it employs almost 11,000 people. Around 90% of this London Stock Exchange-listed firm’s net sales come from the manufacture and supply of beverage cans. However, an expanding part of its portfolio falls into the category of rigid plastic packaging for healthcare applications. Products in this vital field include dry powder inhalers, eye droppers and pharmaceutical pumps. Group revenues in 2012 stood at £4.3 billion and around 34% of this derived from the emerging markets. Rexam is understandably keen to develop these markets and its regional finance operations are playing a key role in this plan.

For Bangalore-based Head of Finance and IT for Rexam Healthcare, V N Shankar, the accumulation of knowledgeand experience is an essential part of being a successful corporate finance professional. This means the academic must meet the practical to form a balanced view of the function.

In terms of study, Shankar meets the criterion amply, with accreditation from the Institute of Chartered Accountants of India and the US Certified Management Accountant (CMA) bodies. Commercial experience is delivered in spades too, with Shankar first entering the corporate financial space with the Indian operation of the globally recognisable heavy earth moving and construction equipment manufacturer, Caterpillar.

Indeed, Caterpillar provided Shankar with a range of roles over a four-year period as he rose up the ranks, starting with internal audit and SOX compliance before progressing to the financial analysis and reporting unit under the auspices of the group’s corporate finance team for India. Handling areas such as fixed assets, forecasting, inventory, receivables and payables, treasury and tax, he looked after accounting teams located in two locations. A key part of the role required him to co-ordinate data provided by the teams, enabling him to rapidly develop functional skills and a keen appreciation of the need for accuracy; an ability which has served him well throughout his career.

Following his time with Caterpillar, Shankar spent three years with the fledgling Indian operation of US-based firm, Closure Systems International. The company, which provides plastic and aluminium bottle caps and lids for a vast range of products across the world, had just set out on its Indian journey. Shankar joined them in Bangalore at the set-up stage. His remit was to lay the foundations for, and to establish, the operation’s finance team and all its in-country activities from scratch. Here he reported to the group’s Bahrain-based regional Finance Director as well as the General Manager of Indian sub-continent in Bangalore; his management of the dual reporting responsibility would again serve him well in a later role. Having set the scene for Closure Systems’ Indian finance unit, Shankar undertook the full range of treasury, accounting and tax duties for the operation, adding further to his already broad-based knowledge and experience of financial processes.

Rexam calls

It was this balance of skills that brought Shankar to the attention of Rexam in Bangalore just over a year ago. His role here reflects his portfolio of capabilities and has earned him the title of Head of Finance, with a local twist that also sees him in charge of IT. With Rexam, Shankar once more assumed a wide range of responsibilities, from accounting and treasury to financial reporting. The latter includes market analysis for new business ventures across the Indian subcontinent, whether through the firm’s organic growth or via acquisition. A substantial part of Rexam’s regional focus now is to increase its market share. In order to achieve this, it has a rolling five-year strategic plan in place which will see it reach deeper into its traditional markets and into the wider Middle East and South-East Asia. With an eye on delivering shorter lead times for its customers and improved product margins for the business, plans are afoot to set up a new production site in a strategic location in the region.

For Shankar this is an exciting opportunity for anyone prepared for progress. Having gained experience and assumed new and different responsibilities, he feels he has made a series of “good moves” to reach his current position. Although “basically an accounting professional from India”, armed with the strategic management toolkit provided by CMBA study and some fine commercial experience in some very large global businesses, he has certainly steered his career in the right direction and now finds himself at the heart of a growing company.

Operational structure

Rexam’s regional finance function sees Shankar reporting to the Business Unit Finance Director, a position that is currently based near the French city of Lyon and which handles all European and Indian financial operations. As Business Unit Head of Finance, Shankar heads up financial operations for the Indian subcontinent, reporting to the local Board in Bangalore. He has responsibility for eight personnel including two Chartered Accountants, one Cost and Management Accountant and MBA Graduates. One of the MBA graduates manages the day-to-day treasury activity including banking activities and all relevant statutory compliance.

“In India we have stringent banking regulations,” explains Shankar. “The Rexam group uses inter-company loans for which India’s central bank (the Reserve Bank of India) has a number of guidelines requiring a significant amount of documentation to be submitted.” The documentary requirement starts before the funding is transferred and ends only when the loan is paid off in full. Compliance therefore requires a complete report and analysis for the duration, with returns having to be submitted to the government every month. This process, says Shankar, can take up to five hours to complete each time. It is a heavy burden of bureaucracy, but is just one of many regulatory demands placed on his team – the management of which necessitates strong leadership. The structure of local operations in some ways facilitates good communication and cooperation.

The relationship between finance professionals within Rexam is influenced by a “lean” concept of staffing which sees many individuals having at least two roles to play at a local level. This, notes Shankar, ensures an easier approach to the coordination of duties, even if it creates different reporting structures (of which, it will be recalled, he has past experience). Shankar reports at a functional and group-specific level to the CEO in France and at a day-to-day administrative level to the Managing Director in Bangalore. “As far as the coordination of activities is concerned it is very clear; in fact there are clear guidelines in terms of what I need to handle, and the people to whom I report are very much aware of what activities I am responsible for; there is no confusion or issues in terms of handling activities between treasury and finance.” Indeed, treasury is the risk management provider to the operation and, as Shankar says, there should be clear cooperation between functions, with treasury helping to finance the business for both operational activities and growth.

Banking and funding

Rexam works with a short list of global corporate banks as its primary partners but local operations are permitted to work with suitable national providers for day-to-day requirements such as payroll or tax payments. The reason for this is simple: local banks are closer to local operations, both physically and in terms of working relationships. This, notes Shankar, ensures business understanding is optimised, “problem-solving is less of an issue and visibility over local accounts is enhanced”. Additionally, in India, he explains that tax payments must be paid online, necessitating a relationship with a domestic nationalised or public sector bank (using a private institution adds several days to the process and thus negatively impacts cash flow).

For operational purposes each country entity is responsible for meeting its own funding requirements (for raw materials, additional headcount, tooling and so on). But for growth plans external funding may be required. This may take the form of bank funding or, more likely, as an inter-company loan. There are strict guidelines laid down at corporate level as to what kind of funding may be used, this being based, as might be expected, on cash flow and liquidity requirements.

Inter-company lending, driven from Rexam’s regional finance centre in London, is typically the least expensive form of borrowing, but local lending can be arranged by the group’s international corporate banks. This will be as a mix of fund-based lending (either as a bank guarantee or letter of credit) and non-fund-based lending (such as a term loan, overdraft or cash credit).

Non-fund based lending means the bank does not commit to any physical outflow of its own cash (so its own cash position is unaffected). The fund-based form will see a physical outflow of cash from the bank which is therefore more expensive. With an approximate 30/70 split in favour of non-fund base lending, Shankar is able to comment that “my overall finance cost is lower and my balance sheet looks good”.

In India, Rexam also uses a type of funding called buyer’s credit which bears a resemblance to supply-chain finance. Buyer’s credit, Shankar explains, is short-term credit for importers provided by overseas lenders. This is often cheaper (in terms of interest rate) than traditional funding for the buyer and also offers an additional credit period. The duration of buyer’s credit varies but in India it can extend up to one year for tradable goods and up to three years for the import of capital goods (although interest can be reset in that period). For Shankar’s purposes vendors can be paid immediately by the bank but payment by Rexam can be deferred by 180 days.

In practice, as soon as Rexam receives a vendor’s invoice, that document is itemised to the bank which will automatically make the payment to the relevant vendor on the due date. Rexam will remit to the bank after 180 days. “It is a completely automated process; I don’t need to worry when the vendor payment is due to the vendor or the bank; it gives very good control over payments and financing activity, the balance sheet looks good and the vendors are happy.”

Technology and hedging

Although Rexam in India uses a number of modules with the group’s SAP ERP system, including a payments automation function, one of its most important treasury functions – the execution of FX hedging contracts – is transacted manually through the in-house bank in London.

Rexam’s European regional banking structure incorporates a header account in London with an account for US dollars, euro and sterling, plus in-country accounts for customer collections which are used to fund payments to vendors in the relevant currency, minimising FX costs. However, the level of overseas trade conducted by Rexam group’s regional and local operations still means it has significant foreign currency exposure; hedging is therefore a key part of its risk mitigation procedure, explains Shankar. Where FX hedges are required they will only go out as far as three months and all hedges are managed on a rolling monthly basis, built around the local team’s foreign currency forecast.

To assist its treasury teams, Rexam has deployed an in-house built and developed reporting system, known as Finder. This solution has been integrated with the group reporting system and offers a comprehensive view across the group of all treasury activities and exposures such as currency hedging and interest costs. The reporting data is updated every month, providing a rolling 12-month forecast by different currencies, giving full visibility over treasury processes with a 90% accuracy rate over three months.

With a substantial portion of Rexam’s India-based production requirements for raw materials being imported, recent fluctuations in the FX market, especially with the Indian rupee against dollar, sterling and euro, such instability has affected operations. “Fortunately we have the hedging contracts; without them we would have lost millions,” states Shankar.

Duty-bound

The importation of raw materials – largely from the US, Europe and the Middle East – brings with it another concern; compliance with strict Indian customs and excise regulations and, more pressing, the level of import duty. Production of the correct documentation – and subsequent processing by the relevant authorities – is a time-consuming process that can add four or five days to customer lead times. Duties applied to imports naturally hit profitability and cash flow but slower lead times also block the flow of working capital which is something of a double whammy for all importers.

At the Rexam end of the chain, whilst a certain level of intervention will always be required to comply with official demands, the production of reports and documentation is to a large extent automated (around 70% says Shankar). Its SAP system has been configured to meet local requirements, notably India’s extremely demanding tax and customs reporting regime and attendant financial accounting. “Without automation it would be a nightmare for us to manage,” comments Shankar. Without the local knowledge and experience of his team, it would be far worse.

Onwards and upwards

With day-to-day accounting and reporting activities taken care of by colleagues, and with Rexam in expansion mode, most of Shankar’s time now is taken up by analysis of customer, product and geographic profitability. There is good reason for this: the Indian government is currently offering a tax exemption scheme to encourage businesses to engage in new product research and development.

In-house R&D centres of companies in certain sectors (such as pharmaceuticals, electronic equipment, computers, automotive and telecoms equipment) are being offered a weighted tax deduction at 200% on R&D expenditure as long as they obtain approval from a central, state or provincial regulatory authority and file an application for a patent on their product. Businesses can write off revenue and capital expenditure on R&D in the year the expenditure was incurred. Although India is a very bureaucratic environment for businesses, Shankar notes that “a lot of companies are now using this as an opportunity to carry out research”. With Rexam preparing for expansion in the Indian subcontinent specifically for a new product line, Shankar’s accumulated financial, analytical and administrative skills are in heavy demand.

For his own future, he is keen too to take advantage of opportunities as they arise. With some high level academic success under his belt and a breadth of experience gained in the last eight years with three global corporations, he is not only looking to consolidate but also to build upon his achievements to date. With a transparent operational model, close cooperation from colleagues at group and in-country level and a business that is clearly ripe for expansion, he is in no doubt that Rexam is the place to extend the reach of his remit.

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