david-foster-on-eatons-treasury-management-practices

David Foster on Eaton's treasury management practices

Eaton Asia-Pacific vice-president of finance David Foster explains how the company used webcasts to teach FX management.

There are many ways to use new media in business. While the opportunities range from responding to customer comments on Twitter to executive blogging, diversified industrial manufacturer Eaton chose webcasts for improving its treasury management in Asia-Pacific.

Following a series of mergers that significantly expanded its Asian operations, Eaton needed to introduce new finance staff to the company and reduce the rapidly increasing impact of foreign exchange on its bottom line. "We found people weren't comfortable with what to do so we had a lot of the operations out there not really following the structured approach we wanted for currency management," said David Foster, Shanghai-based Asia-Pacific vice-president of finance for Eaton. "We rolled out two, two-hour webcast trainings on what is Eaton's strategy for managing currency risk, ie: here's how you hedge, here's the process for hedging and here's how you do the accounting."

By doing webcasts, Foster said his team was able to easily communicate the company's global hedging strategy and build rapport between Eaton's corporate and operations functions in Asia. "It started the dialogue and built the relationship between treasury and operations," he explained.

The company's foreign exchange hedging strategy includes monthly analysis of eac operation's FX exposure by its headquarters in Cleveland, Ohio, then the formation and adoption of individual hedging strategy recommendations. Thanks to the training programme, his treasury groups throughout the region were soon following the same play book as the Ohio team, and implementing hedges faster.

In the end, Foster said the training programme saved the manufacturer "millions of dollars" on approximately $2 billion in annual currency transactions and helped it verify and collaborate cash inflow and outflow positions in the 11 countries it operates in and around the region. While that is a guesstimate of savings, Foster said it was significant to the company.

"We've seen a dramatic increase in the number of FX transactions we're doing," continued Foster. "If you look at year-todate this year [December 2009] compared to last year, we've improved the net impact of FX gain or loss on the P&L at a rate that is 10 times better than last year." Not too shabby for four-hours of new media training.

Responding to growth

Eaton has grown by leaps and bounds in Asia during the past few years. Specialising in electrical systems but offering a diversified portfolio of industrial products, the manufacturer's regional net sales have doubled to $1.96 billion in 2008 -- 12.7% of global net sales -- from $888 million in 2006 on the back of a number of acquisitions. In the company's 2008 annual report, it attributed 72% of its Asia revenues to its December 2007 purchase of Taiwan-based Phoenixtec.

With growth came the need to better control cash. A 14-year veteran of Eaton's automotive division, Foster took the helm of its Asia-Pacific finance function in June 2008 with responsibilities including day-today foreign exchange risk management, hedging, regional cash management, operations financing and transaction management across the company's Asia-Pacific operations. He oversees a team of 100 people, including 75 in two shared service centres and 25 in the company's regional finance, tax and treasury departments.

"For the first six-to-eight weeks it was a little bit like I was a fish out of water," he said on shifting from the operations side of Eaton to the corporate side. "Like at any big organisation, I had a multitude of goals out there and limited resources. I had to prioritise." Not only did he have to prioritise his goals but he also had to make sure they were aligned with the company's global finance strategy.

Improving currency management was one thing Foster could address quickly. In addition to Phoenixtec, the company had acquired German-based Moeller Group -- an electricity distribution specialist -- that had large operations in Asia-Pacific as well as the truck valves business of Kirlokar Oil in India. With the staff from these companies joining Eaton in 2008 and 2009, a quick introduction to the company, especially its finance strategy, was necessary.

"From a priorities stand point, we were having so much growth going on in the region, I just don't think it got the proper attention," said Foster. "During the past 16 months it has been an amazing ride in just the Australian dollar alone. When you look at it, the currency movements were large and very fast, one way or another. It just highlighted what we needed to do -- instil discipline and make sure we have a process that we can repeat on a monthly basis."

One of the benefits of Foster's use of new media to connect staff and bring them up to speed on Eaton's strategies is how it is relatively low-tech and easy to implement. "You can't always wait for a systems solution," he said. "Sometimes you've got to go out and put a process solution in place first to drive the right behaviour and right objectives."

He said he thinks a new media-based training programme would be good for any company "with a regional presence that maybe grew by acquisition and not necessarily all on the same systems yet".

Some companies that immediately come to mind include Hong Kong's trading company Li & Fung (best known for its garment division) and Australia's Toll, which is the country's largest logistics and transportation-solution provider. While webcasts do require some investment, other mediums, including Twitter feeds (not recommended when discussing internal company strategy) and blogs or message boards on the company's intranet, could easily be used to connect staff across functions and geographies.

More to come

Giving new employees a 21st century how-to is only just the beginning when it comes to managing Eaton's Asia-Pacific finances Foster's goal now is to move on to upgrading the company's systems to further eliminate the potential for human error. "One thing we're planning to do in 2010 is implement a system that automatically places our currency transactions," he said. "We're trying to automate the execution of FX transactions."

In addition, Eaton began implementing Citi's TreasuryVision, an online portal that gives treasurers a centralised view of all accounts and investments through a single portal, across its 11 Asia-Pacific operations this past fall.

But if there is one thing Foster emphasised it is that any treasurer or finance executive should at least look closely at process solutions before immediately jumping to implement system solutions. New and improved software is good, but it doesn't replace comprehension and training in basic procedures.

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

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