Case Study: FMCG

This case discusses a leading multinational fast-moving consumer goods (FMCG) company operating through multiple segments involving personal care and household products. The company has a global presence with manufacturing, distribution, research and office facilities set up around the world.

The company has operations across APAC where local currency-denominated investments are performed in-country and involve manual processes across multiple bank portals. This brought challenges at group level in gaining visibility over cash positions in the region and resulted in lack of coordinated efforts to achieve high efficiency in treasury management.

The company established its APAC regional treasury services entity (“CTC”) in Hong Kong in 2018, with the key objectives of centralising liquidity position, optimising capital utilisation and managing re-invoicing centre’s treasury activities for better efficiency and risk control. Implementation of the CTC involved streamlining banking relationships, reducing the number of bank accounts, eliminating manual payments, enhancing visibility and ultimately achieving cost savings.

The company worked with a global banking partner as its new regional cash management services provider and implemented a new liquidity structure, which included:

• setting up of a multi-entity, multi-currency notional cash pool to improve the use of idle cash across operational subsidiaries throughout the region;
• opening a separate USD funding account outside of the notional pool to fund overdraft, thus reducing cost of capital through optimising external and internal financing;
• centralising banking relationship and account management where a third-party bank solution was embedded;
• leveraging the integrated APAC liquidity structure to enable enhanced visibility of free cash flow to be deployed into trade programmes, which helped infuse funding into the supply chain and lead to working capital optimisation;
• centralising foreign exchange risk management and hedging by accessing onshore and offshore markets; and
• enabling other working capital management options such as supply chain financing programme and dynamic discounting.
  
  

As a leading multinational FMCG group, the company has a highly sophisticated global organisation structure involving legacy business units as well as various new entities and businesses created through acquisitions. Hong Kong’s unrestricted overall business environment and well-developed financial markets provide the ideal platform and conditions for the group to consolidate and manage its treasury-related activities across the region efficiently from one location and via one integrated CTC operation.

Given the group’s key focus on China’s consumer market and its significant operating assets in the region, Hong Kong’s proximity to China and the availability of highly skilled and Chinese language proficient finance professionals would enable more efficient business setup and ongoing operation for the company.

The company has achieved substantial improvement in cash visibility, control and accessibility in the region after centralising its treasury management activities in Hong Kong. The group was able to drive down overall financing costs by leveraging a highly efficient liquidity structure, reduce idle cash to improve cash utilisation, and bring opportunity to elevate yield on surplus funds. Foreign exchange exposures are centrally managed under the CTC entity where all hedging is executed. Allowing access to onshore and offshore markets has also helped mitigate risk and reduce cost.

The liquidity solution carries multiple features that benefit the company’s cash management operations:

• multi-currency notional pool set-up in Hong Kong centralises and consolidates cash positions without disrupting existing cash flows.
• cross-border sweep centralises APAC funding in Hong Kong under the CTC entity. Based on the regulatory environment of other local markets and jurisdictions (regulated or non-regulated), manual or automated sweep are configured to cater to diverse needs.
• global netting and re-invoicing went live in three months after project implementation.