Streamlining Global Subsidiaries: Case Study

Managing FX across multiple entities can create inefficiencies, inconsistent processes, and limited visibility. This case study explores how Marex supported a global business in centralising its treasury function and streamlining FX management across its subsidiaries. 

Overview

Building control across a growing global business

Our client was seeking support in how to best to manage their treasury needs. They had grown considerably and, rightly, had allocated their time and resources to growing the business rather than streamlining it. 

This had left them with a lot of different stakeholders doing lots of different things and instead of driving in the same direction, which created inefficiencies. 

They were headquartered in the UK and operated as a designer, manufacturer and distributor of retail products. 

Manufacturing bases were in two European and two Asian facilities, which they owned, and they also had several sales offices across the world. 

They were well-financed with a model that was working, so they expected to continue to expand through acquisition and we worked with them to get help structure their FX. Acquisition made sense as a route to grow their business. But buying established businesses meant that they were acquiring legacy processes and systems. 

They had a growing business, strong revenues and a forward-looking plan. Their businesses weren’t yet fully integrated, and they could see the opportunity in front of them but need help getting there. 

Client challenges and FX exposure

Understanding complex global cashflows

It took us a while to get our head around the business and get a deeper understanding of the cashflows. 

This took conversations with the CFO, the UK treasury team and with finance functions in the regional business units. 

We work best visually, so once we’d drawn a picture of the funds flows from each of the entities to the suppliers, inward cashflows from customers and intercompany transfers, we were able to think through how to go about reducing the amount of noise on the page to optimize what we were left with. 

Leveraging natural hedges and improving visibility

There was value in making the most of the ‘natural hedges’ within the group; their European businesses were generating cash in Euros, which meant those Euros could be used within the group, instead of the UK and US businesses having to buy Euros in the market. 

Whilst unifying the purchasing process across the group and using the collective trading volumes to achieve more competitive and consistent FX pricing put more cash back in the pockets of the business. 

This also gave visibility at head office as to what the individual businesses were committing to. 

Lack of policy and structure

Lastly, with no set treasury policy in place, there was no formula to bring further businesses into the process, which we knew was a key part of their strategy, so it made sense to document the policy. 

We set out pre-defined trading limits and counterparties within the policy, so new finance teams had a how-to guide and the necessary support to hit the ground running. 

FX Strategy and proposed solution

Central treasury function

We proposed a ‘central treasury function’ that each of the business units could contribute to. 

In practice this meant that each business could submit its cashflow forecasts, these could be combined with the other forecasts from group companies and the net requirements of everyone could be catered for. 

Reducing unnecessary FX activity

Work that we had done earlier in the exercise, to map out the flow of funds through the business meant that we’d be able to reduce the group’s currency purchasing requirement by about 30%, which in turn reduced trading costs and improved efficiency.

Implementation and delivery

Having been involved with the initial consultancy, a lot of the group companies were happy to move to a more streamlined and prescriptive approach. 

As the group acquired more companies, they are still using the prescribed integration approach. 

Results and outcomes

Ongoing evaluation and optimisation

Measuring success isn’t only about the numbers, but about the teams that use the process and the invaluable feedback that they provide. 

Knowing that change isn’t always easy and isn’t necessarily embraced by everyone, we set monthly meetings for the first six months to help streamline the process and authorisation niggles that we found along the way. 

Long-term impact and efficiencies

By taking the time at the beginning meant that we were able to move swiftly, efficiently and with as little inconvenience as possible when it came to putting a solution into place. 

The client now has a robust solution in place that can grow with the business and, because we collaborate across the business, we created a great communication network within the group. 

With a centralised treasury, FX reporting on gains and losses are taken at group level and we’ve lowered audit costs amongst the groups, as there were less positions to value at year end and only one entity holding these positions.