Financing emergencies

Tan Lee Thong, CFO of International SOS, a healthcare and medical assistance company, is kept on his toes by disasters and political turmoil.

The devastating earthquake and tsunami in Japan in March was an example of why the job of Tan Lee Thong, who is general manager of group finance for International SOS, is so challenging.

Preparing for a disaster is never easy. Preparing for a disaster when you are part of the disaster relief team means you have to get it spot on. International SOS provides round-the-clock services 365 days a year. And it works for movers and shakers in the global economy: its 9,200 clients come from government organisations and multinationals, and includes 88% of the Fortune 100 list and 66% of the Fortune 500 list.

A presence across a number of countries means the finance function of International SOS has to cater for funding requirements across multiple time zones. For example, in the aftermath of the tsunami in Japan, International SOS activated teams of medical, security and logistics experts in various locations to provide assistance to its members based in Japan. The company almost immediately set up a dedicated Japan crisis website that members could log on to for information on radiation and risks, among other things.

Each year, Tan has to go through a budgeting exercise. The medical services division that provides mining and oil and gas companies with access to doctors, nurses and paramedics is contractual, which provides a more predictable income stream as contracts are normally between two and five years long. International SOS also operates clinics, mostly in Africa and China, and revenues and costs here are patient-driven and can be predicted with some level of accuracy. What is difficult to forecast is the operations billing. The need to extract people from locations like Japan or the effect of pandemics can never be foreseen. So Tan’s team has to build a cushion into their cash requirements to budget for this.

“We are based in Singapore but have chosen to partner with global banks because our business spans 70 countries from the developing to the developed world,” said Tan, who has been with International SOS for almost a decade.

International SOS has banked with BNP Paribas almost since it was founded in 1985 by French doctor Pascal Rey-Herme and his friend Arnaud Vaissie. The company the duo started was named AEA International and had the stated aim of providing international standards of medical care and emergency assistance in Southeast Asia. It had bases in Singapore and Indonesia and 15 employees. Following the acquisition of International SOS in 1998 the company was renamed.

The business has grown to span the globe. To cater to the demands of growth, Bank of America Merrill Lynch, HSBC and Standard Chartered have joined the consortium of banks International SOS works with. The company deals with the Singapore branches of its banks but draws on global expertise to structure customised solutions.

One of the issues International SOS faced was how to provide subsidiaries in various countries with enough cash to fund their continuing operations while ensuring money was not kept idle, earning no return. Tan cites the Middle East crisis as an example of a time when subsidiaries faced a sudden demand for cash to evacuate members in countries where unrest and instability was growing.

“We asked our banks for a solution and one year ago we implemented a multi-currency notional pooling system,” he said. It started out with eight legal entities trying it out; now 20 subsidiaries are using it. The attraction is that it has obviated both the need for subsidiaries to transfer funds to the Singapore headquarters and also inter-company loans, which the Singapore parent had hitherto been extending.

However, Tan is candid that currency management is an area where his banks have not yet been able to provide him with a solution that enables him to stop running a full-fledged treasury. “We would love to have a bank providing us with ideas on an ongoing basis but in reality we manage 20 currencies in-house,” he said. “Disasters and security threats happen unexpectedly anywhere in the world so our currency transactions can happen in any direction.” International SOS developed a system that extracts data from its enterprise resource planning system that is capable of monitoring its currency exposure daily. “Sometimes exposure in one currency mitigates exposure in another, so we can minimise the hedges that we buy,” Tan added.

At the local level International SOS advocates natural hedges as much as possible, so subsidiaries are encouraged to use local-currency receipts to fund expenditure. However, he continues to hold discussions with his bankers about currency management and is hopeful that a solution will emerge. Meanwhile, International SOS has implemented a global netting solution worldwide to reduce the company’s foreign exchange exposure.

Membership provides clients with access to the services International SOS provides, but these are all subject to billing. “We are not an insurance company,” emphasised Tan. So, for example, evacuation due to a medical emergency could mean costs related to charter of ground and air ambulances, doctor’s expenses and hospitalisation.

One of the case studies on the organisation’s website described how one of its members suffered a stroke while on a business trip to Moscow. He was evacuated to a London hospital and once his condition had stabilised he was repatriated to his home in Toronto. Emergencies like this are a daily occurrence for International SOS and mean liquidity management is a continuing challenge for Tan.

“Working capital is a very important KPI [key performance indicator] and we constantly monitor this to ensure working capital liquidity management is robust,” he said. “We try to get invoices from vendors as quickly as possible to present to the client, both to shorten the working capital cycle and to minimise foreign exchange exposure as expenses can be incurred in multiple currencies.” Here again banks are unable to offer International SOS trade finance. Rather, the company funds such outflows from its normal working capital and manages it from two shared service centres, one in Singapore catering to Asia and the other in Prague catering to Europe, Africa and the US.

As a service provider, people are at the backbone of International SOS’s operations. Of its 8,000 employees one-third are medical professionals. Tan’s role at International SOS includes ensuring he manages finance well enough to that the company and its employees can continue to deliver often life-saving services to its members. No easy task, but it does mean every day Tan’s job throws up something new, guaranteeing he never gets bored.

 

This story was first published in the May 2011 issue of FinanceAsia magazine

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