Centralised from the start

Dennis Chan looked excited. The financial controller of Pacific Andes International Holdings, a Hong Kong-listed global seafood conglomerate, had just closed a $190 million private placement with The Carlyle Group to fund expansion – the latest in the company’s plans to grow.

“The investment will allow the entire group to expand,” he said. “We are targeting expanding our fishing rights in Peru and in Africa – all over really.”

Pacific Andes has grown rapidly during the past decade, reporting a compound annual growth rate of 21% since 2000, as it acquired and built up operations ranging from fishing, packaging to distribution around the world. With the company since 1995, Chan is responsible for managing its finance and treasury functions supported by a team of five.

While the placement was the first topic to come up, we were not there to discuss financing. Pacific Andes global treasury, centralised in Hong Kong, was the topic of the day. “The company policy is to let local staff manage local operations but we need to control the cash,” said Chan. “A centralised treasury allows us to have control but operations to be independent.” He added that the solution saves Pacific Andes money – though he did not have any specific estimate for how much – and allows it to use funds more “intelligently”.

Intelligent use of cash is important in the seafood industry. Chan explained that small things, such as a delay of the annual fishing season off the Peruvian coast by just one or two weeks, can significantly impact the company’s inventories and receivables. By extension that affects its overall cash and debt positions, which makes it all the more important for Chan to intelligently manage cash from his desk in Hong Kong.

“Because of electronic systems, we know our liquidity positions on a daily basis,” he said. “Once the system is set up it becomes a routine procedure and we can easily adjust for seasonal changes.”

The structure of Pacific Andes treasury is simple. It maintains a central account in Hong Kong where funds from its local operations around the world are swept on either a daily, weekly or monthly basis depending on the cash flow of the subsidiary. HSBC, Rabobank and Standard Chartered Bank handle its core global banks; institutions the company selected because of their “international networks”, according to Chan.

As an example, Chan cited Pacific Andes’ US operations. Customers pay directly into the company’s local operating accounts at one of its banking partners, these then act as an automated lockbox which sweeps the cash back to Hong Kong on a regular basis. “In Hong Kong, we mainly have a monitoring role. Our lives are quite comfortable,” he said.

Lead by example

Pacific Andes solution is not remarkable. Multinationals have been setting up centralised global treasuries for years. What is notable is the fact that the company is not a multinational with decades of international experience but a relative newcomer; it was founded in 1986 and has only had overseas subsidiaries since the late 1990s. It is rare for such a company to have the foresight to invest in a global treasury solution that saves money and gives it the visibility to intelligently manage cash.

Asked whether a centralised treasury is something other small companies   with global ambitions should implement, Chan had a mixed view. “A centralised treasury has a lot of advantages, for example you can make the best use of funds, but it also has disadvantages,” he said. “Most important is the company’s policy – how they want to manage their overseas operations.” In Pacific Andes’ case, it decided it wanted local subsidiaries to be independent, except financially. A centralised treasury was a logical way to realise that. Whether or not that is the strategy of another firm is up to them.

Companies at this juncture include China’s Geely, which acquired Sweden’s Volvo this March, and Japan’s Shiseido, which announced a takeover of US-based Bare Escentuals in February. Both of these businesses are embarking on international expansion that will require them to decide how they want to manage cash – not to mention local operations.

Chan said his focus going forward is on implementing a global enterprise resource planning platform from SAP. He said the system would simplify the task of managing global operations, including treasury planning, at the company; China and Hong Kong are due to go online by the end of the year and the rest of the company in 2011. The improvement comes just in time as the company begins putting those Carlyle Group funds to work expanding operations and maintaining its double-digit growth rate.

This story was first published in the July 2010 issue of FinanceAsia magazine.