Corporate View: Wyatt Wu, Kohler

Published: Jan 2010

Founded over 130 years ago in the United States, Kohler Co is now the world’s leading plumbing products manufacturer. Besides kitchen and bathroom products, the company also manufactures fine furniture, power systems and runs golf courses and hotels. The company is globally headquartered in Kohler, Wisconsin, USA. In the Asia Pacific region, Kohler operates across 14 countries, employs 10,000 staff and generates annual revenues approaching $1 billion.

Wyatt Wu

Regional Treasurer, Asia Pacific

Wyatt Wu is Regional Treasurer, Asia Pacific of Kohler Co. In this position, he is responsible for regional treasury, credit and financial shared services in 14 countries. Wyatt started his career with corporate and investment banks in London and Amsterdam, he was Assistant Treasurer, Europe, Middle East and Africa of Omron.

Wyatt is a Certified Management Accountant of the US and holds an MBA from the Arizona State University.

Please could you give me a brief overview of Kohler’s activities in China?

China is our most important market and manufacturing base in the region. We started supplying products to the China market as early as the 1930s. We re-entered this market in the 1990s and have grown rapidly since. Currently, we have 16 legal entities and 6,000 employees in the country. Our Asia Pacific regional headquarters are in Shanghai.

What is your role at the company and how is the treasury structured?

I am responsible for the Asia Pacific regional treasury, credit and financial shared service functions including cash management, risk hedging, funding, bank relationships, insurance, credit control, accounts receivable, accounts payable, travel and expenses (T&E) and payroll.

In the last few years, I have developed a large treasury team that supports our regional scope expansion in both treasury and shared services. I currently manage 30 people, including managers, supervisors and analysts. The team comprises of different nationalities.

Kohler has two treasury centres globally: one is in Kohler, Wisconsin. It has global oversight and manages the daily operations in the Americas and Europe. The other, in Shanghai, manages the treasury operations in Asia and the Pacific. I interact frequently with our global treasurer on all issues related to treasury and credit.

What is Kohler’s cash position in and outside China and how do you manage it?

In the past decade, because of aggressive expansions in China, a primary task of treasury has been to secure adequate funding and liquidity to finance the high growth in China at a reasonable cost. We have established strong relationships with a number of international banking partners, plus the big four state-owned banks, and have large credit facilities at hand.

Today, most of our manufacturing plants in China have reached mature stage. The cash flow is strong and our large initial investments are paying off. Kohler China is transforming to become a debt-free company.

Outside China, we are investing heavily in a number of emerging countries in Asia. For example, a large scale manufacturing complex is currently being built in the state of Gujarat, India with large internal and external funding to ensure that we achieve a marketing leading position in the country.

As a private company, I believe we could enjoy certain advantages of not having to overly focus on quarterly earnings per share. We would therefore have greater freedom to invest in a number of long-term projects that would require substantial initial investment but would eventually yield big payoffs.

Has the financial crisis impacted the company?

The majority of our China business is domestic. Sales were down during late 2008 and early 2009, which we have attributed to the financial crisis. However, since Q2 2009 both sales and cash flow have been strong due to resumed domestic demand and prudent credit policy. As a plumbing company, our export business has certainly been impacted by the shaky US housing market that has only started to show signs of a slow recovery.

How do you feel the role of the treasurer has evolved in Asia and China?

Treasury is a relatively young profession in Asia and indeed in China. Prior to the Asian financial crisis of 1997-1998, most companies operating in the region focused their attention on growing sales. It was easy to obtain funding from the money market to finance the various expansion projects and the currency risks were limited. It was the crisis that led people to fully realise the importance of FX and IR hedging programmes and the necessity of enhancing cash and liquidity management. It served as a catalyst for the rapid development of the treasury profession in Asia.

In China, this profession really only emerged from the beginning of this century, though a few companies had it a couple of years earlier. It started with leading US and European multinationals establishing a small local treasury department in China. As more and more multinational companies (MNCs) come to view China not just as a major manufacturing/export base, but also as the chief market of Asia, national treasury centres have started to gradually evolve into regional ones.

This may be either by adding multiple country responsibilities or by integrating into existing regional treasury centers (RTC) when they move to China from traditionally favoured locations such as Singapore (and to a lesser extent Hong Kong) together with the regional business headquarters.

The recent trend has been that large indigenous Chinese companies have started to establish a formal corporate treasury function as they become increasingly global and sophisticated in financial management. Lenovo led the way by establishing a global treasury in Singapore in 2005 after the IBM PC Division acquisition, followed by other major Chinese MNCs establishing similar departments in mainland China or Hong Kong in recent years, such as Haier and Huawei.

Finding suitable treasurers in China is still somewhat difficult, so an important portion of the positions are filled by Asian and Western expats. But without doubt, an increasing number of ambitious and internationally minded Chinese nationals are taking on the role of Asia Pacific regional treasurers. At Kohler, we have gone a step further by expanding treasury scope from traditional cash, FX and funding/investment to include credit and accounts receivable (A/R) in the risk management arena and accounts payable (A/P), payroll and T&E in the cash disbursement arena.

Could you compare some of the characteristics of treasury operations in Asia and Europe?

As someone who has had the opportunity to lead corporate treasury operations in both Europe and Asia, I would say, yes, Asia and Europe have many similarities. Both are multi-national and multi-cultural with a long and rich history. However, they are at the same time quite apart.

Europe today enjoys enormous benefits from the EU’s continuous integration efforts and the single currency, euro. A euro cash pool has become the standard cash management tool for companies operating across the Euroland countries. In addition, many companies run more sophisticated structures such as cross-currency notional pools and pan-European intercompany netting systems that cover the entire Western Europe and most of Eastern Europe.

The Asian market is still fragmented; lots of different rules and regulations exist among many different nations regarding (or simply prohibiting) pooling, netting, etc. ASEAN countries, East Asian countries and the interactions between them are bringing some degree of integration to the region, which is an encouraging sign for treasurers operating here. But even today, the establishment of, for example, a US dollar notional cash pool in Hong Kong or Singapore to pool the dollar funds from less regulated Asia Pacific markets (Japan, Hong Kong, Singapore, Australia and New Zealand) is still uncommon and just a few banks are offering these types of products.

Ten years ago, I was running a cross-border notional cash pooling system from London involving ten currencies. From that perspective, I would say Asia still has a pretty long way to go to create an environment for a world-class treasury to operate.

What is your view on the regulatory obstacles facing treasury in China?

It is always a challenge to run treasury operations in a highly regulated environment, whether it is in China, India or elsewhere. China has made some changes in the last five years in the right direction with regard to easing the hurdles and loosening up the restrictions (eg reminbi zero balancing cash pooling system became permissible in 2004, and US dollar zero balancing pool in 2005).

However, there is certainly much more to be done. I hope there will be a smoother regulatory environment governing funds in and out of China so one could more easily finance regional operations with cash from China and vice versa. This would not only better materialise the value of having an Asia Pacific head office in Shanghai, for example, but would also help the city to reach its goal of becoming a truly international financial centre.

Moreover, I wish there could be more freedom with hedging balance sheet items in China which is a regular practice and requirement of many MNCs.

What issues should corporates be aware of when looking to set up a regional treasury centre in China?

The most important aspect in setting up and running an Asia Pacific treasury from China would be to find the right talent; people who are internationally minded, have the confidence to communicate in a foreign language, and who are not only comfortable to operate in a highly regulated market, but also have the desire for the most advanced treasury products offered in the developed markets.

What we have accomplished is to find and train the talent internally. In several cases, we have developed people from the credit control function; people who have the right communication skills and the capability to balance risk control and business growth.

Our largest project for the end of 2009 was to get a dividend in the size of around 50m US dollars out of China utilising US tax waivers. The funds will in turn be used to finance our international operations in other parts of the world, especially Europe.

As for 2010, I would like to see the regional FX exposure reporting system that we developed in the Asia Pacific region being rolled out on a global scale.

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