ÖBB underwent a major restructuring in 2005 which resulted in a group structure with 100 subsidiaries throughout Austria, with issues on cost allocation and centralising cash flows at the treasury level. DB-netting, a receivables driven web-based netting system, allowed each subsidiary to make a single payment or receive payment from the netting centre each month, thereby cutting significantly the number of transactions between them.
Gernot Netinger
Head of Financial Services, Corporate Treasury
ÖBB Holding AG is the holding company for ÖBB Group, the Austrian railways company. Wholly owned by the Republic of Austria, ÖBB Holding is responsible for strategically managing the ÖBB Group’s subsidiaries and co-ordinating Research and Development activities throughout the Group. The ÖBB Group consists of around 100 companies and employs 45,000 staff.
Problem…
Following a major restructuring at the beginning of 2005, ÖBB moved to a group structure with ÖBB Holding acting as the parent company to around 100 subsidiaries throughout Austria. As these subsidiaries had originally been divisions of the ÖBB company, services between them had previously been charged internally. However, as a result of the restructuring, the cost allocation had to be treated as intragroup payments.
In order to centralise the cash flows at the treasury level, ÖBB Holding decided to look for a netting solution that would reduce the volume of payments while increasing efficiency and cost effectiveness. An important requirement was the interoperability with ÖBB’s in-house ERP system, SAP – in order to avoid system breakages, as well as to make the workflows of the integrated entities as efficient as possible.
…Solved
Gernot Netinger, Head of Financial Services at ÖBB Holding’s Corporate Treasury, discussed his requirements with Deutsche Bank representatives at a treasury conference in 2005. Having analysed various providers in detail, Netinger decided that Deutsche Bank’s solution was the best fit for ÖBB Holding’s requirements. “We wanted to have a solution from a company which had extensive experience in this area. We were aiming to implement the solution within four or five months, so a high level of support by the provider was also a priority. Deutsche Bank’s proposed solution proved to be an ideal system for our company and with favourable implementation costs, there was no problem getting approval from the board.”
The solution of choice was db-netting, a receivables driven web-based netting system. Using this system, each company makes a single payment to, or receives a single payment from, the netting centre each month. This significantly reduces the number of transactions taking place between the subsidiaries. The participating ÖBB companies enter their transactions into SAP by the notification date each month and the transactions are then uploaded into db-netting. Once the initial calculation has been made, participants are able to dispute payments until the dispute date arrives and the payments are then settled. The final payments are automatically reconciled with SAP.
The system was initially rolled out to nine of ÖBB Holding’s subsidiaries in 2005, with six more companies integrated into the solution the following year. The implementation was smooth, with minor difficulties in the interface with SAP resolved quickly. On the treasury side, the implementation was run by one member of staff, with one or two people responsible for the netting process in each participating company. As the solution is web-based, ÖBB Holding does not have to carry out any ongoing software maintenance, while all the data is stored on Deutsche Bank’s server, removing the need to carry out back-ups.
Netinger remains pleased with the new system. “We are very satisfied. On the one hand, there are no technical problems; on the other it has been easy to introduce this solution as it is a web-based application.” Netinger is planning to continue to roll the system out to ÖBB Holding’s subsidiaries in waves. Another 10 companies will be added in 2007, and up to 15 will be added in 2008, with the eventual goal of incorporating all 100 of ÖBB Holding’s subsidiaries into the system.
Netting systems
Netting systems allow inter-company payments to be made on a net rather than a gross basis. Instead of making bilateral payments between each other, all the participating entities agree the amounts due to and from each other in the settlement period. Rather than make a payment for each amount, a single net payment is then made or received from the central netting centre at the end of every settlement period (netting cycle). Each participant holds an ‘account’ with the netting centre, which acts as a counterparty to all the companies in the netting group.
