Benefits of centralised cash management, according to Savills

Savills' decentralised operations prompts Asia-Pacific CFO Lilian Chin to choose a notionally pooled regional treasury.

Property is the forte of real estate service provider Savills. Cash management is not. Until recently, the firm's local operations controlled their own cash with little involvement from Savills' regional or global executives. In the words of Asia-Pacific chief financial officer Lilian Chin, the focus was on bringing in sales -- not improving efficiency.

"When I joined Savills, I immediately saw the need to have a regional [treasury] solution for the company's operations in Asia-Pacific," said Chin. "We are responsible for both our clients' money and our own corporate money as well. I needed to be able to see at a glance what is there and what is not there and how to repatriate cash from certain countries into Hong Kong or into the UK. All these needs require good treasury management." But before she could achieve a level of good management, she had to address Savills' historic organisational structure.

London-based Savills buys, sells, manages and consults on various types of properties in 36 countries around the world. In the first half of the year, it posted revenues of £247.6 million ($405.7 million) and a profit before tax of £2.5 million, down 11% and 87% year-on-year respectively. In Asia, the firm operates in 10 countries and generated £95.3 million in revenues during the first half, up 6.7% compared to the same period in 2008.

Chin joined Savills in July 2008 with a strong background in finance and accounting after spending eight years in Bloomberg's finance division and two years at Moody's where she worked within its regional treasury structure. Chin has also worked for Deloitte and Ernst & Young. At Savills she oversees a team of more than 200 finance and accounting personnel in 10 countries and has dual-reporting lines to Robert McKellar, Asia-Pacific chief executive, and Simon Shaw, group chief financial officer.

Chin set out to remake Savills' treasury model, but first she had to jump over a number of internal hurdles. "A regional treasury function was unheard of [at Savills] in the past," she said. "I had to sell this idea internally before we could begin on the actual solution itself."

Investor benefits associated with increased control over the company's cash helped sell the idea to Savills' audit committee in London and assurances that local entities would not lose all control over their operating accounts swayed country finance heads. Also beneficial was the
company's self-described "entrepreneurial culture" that is supposed to reward innovation.

When the necessary corporate approvals were in place, Chin was able to move forward with her plan to create a regional treasury for Savills' Asia-Pacific operations.

Overall view

Chin's proposed changes were nothing radical in the world of cash management. She sought a regional solution that would allow her, as well as the local heads and its global finance executives, to view account balances in the region through a notional pooling structure and sweep excess cash into local master accounts. Local finance heads would still be responsible for initiating transactions involving their accounts though Chin and her boss in London, group chief financial officer Simon Shaw, would be able to issue commands that they had to implement.

More radical -- and more difficult to implement -- would have been a true central treasury where all of an organisation's regional finance functions (except local day-to-day operations) are consolidated in one centre with excess cash balances swept into a single master account.

Companies with decentralised operations, like Savills, typically choose notional pooling, which leaves cash in-country, while electronically creating a single master view across all currencies and accounts, because it does not require a significant organisational reshuffle that can be costly and time consuming itself.

After determining the treasury structure she wanted for Savills' Asian operations, Chin sent out a request for proposals to eight banks at the end of March 2009.

Evaluation took four months and on September 1 the company selected Standard Chartered Bank to implement a 10-country notional pooling solution.

"The first step for us is to have better control over what we have in the region by having an overall view in Hong Kong," said Chin. "Daily sweeping will be into one major account in each country and we will have view-only capabilities in Hong Kong."

In addition to these first steps, the solution included consolidating 300 corporate bank accounts at 38 institutions across the region to 200 accounts at 15 institutions. Chin explained that local
finance heads still need "some flexibility" in managing their accounts and that ideally the company will have "one regional banker" and "one local banker" in each country.

Implementation of the solution was split into two phases with Savills' operations in Hong Kong, Macau, Singapore, Thailand and Vietnam migrating their accounts and systems to the bank by the end of 2009. The remaining five-countries -- Australia, China, Japan, South Korea and Taiwan -- will begin implementing the solution this year.

A more centralised treasury operation, including giving Chin authority to move money into or out of local accounts and creating a single regional master account, is still a while away. "We can't just take an immediate leap from one [model] to the other," she said.

"Culturally we have been operating in a decentralised manner for the past 20 years and we cannot expect to make immediate changes. We don't want to force it down peoples' throats."

Chin continued: "We want to make sure everyone sees the benefits and slowly accepts more and more [regional] solutions."

Only phases one and two of Standard Chartered's solution for Savills are currently defined though Chin said later phases could include a more centralised treasury operation.

Measurable success

When the solution is fully implemented this June, Savills estimates it will save the company HK$2 million ($250,000) a year, not including notional pooling interest earnings.

While small compared to the company's £185 million in total revenue generated in Asia-Pacific in 2008, every little bit counts.

Savills ended a two-year, £50 million cost savings programme on December 31 last year that by the end of June had succeeded in saving the company £42 million.

Chin downplayed the monetary benefits of the regional treasury. "The monetary benefits are important to the regional heads because they are very business minded," she said. "But for us [treasurers] it's not only that. It's also for compliance, to strengthen our internal controls and
manage our cash better."

Whether it was the monetary benefits or the increased control, Chin's strategy has been noticed at headquarters. She said the company has plans to set up a similar regional cash management solution in Europe.

Hardly unique to property, regional notional pooling solutions are applicable across industries and any large bank, such as Citi or J.P. Morgan, is able to offer them. Based on her experience
implementing the solution, Chin said it would fit any company with a similarly decentralised regional operation that needs to "manage their liquidity and treasury function better. 

This story was first published in the December/January issue of FinanceAsia magazine.

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