The Role of Trade Finance in Working CapitalMeeting objectives in isolation
As discussed, companies choose to try to
meet these objectives in a variety of ways.
The most straightforward method is simply
to focus on the core objective and identify
areas of inefficiency which might prove easy
to improve. This applies for each of the three
core objectives, although the degree to which
improvements can be achieved will clearly
depend on the company’s current processes
and activities.Improving liquidity
Given the focus on liquidity since the demise
of Lehman Brothers et al., many treasurersthrough a local bank, with the company’s
local management team having to
arrange each transaction and consider the
implications of the requested wordings.
This not only added to the workload
locally, it also made it more difficult
for Kingspan’s treasury team, based
in County Cavan, Ireland, to leverage
the Group’s multiple global banking
relationships effectively and maintain
optimum efficiency and control.
As RBS has a longstanding relationship
with the company, the Kingspan treasury
team responsible for reviewing the wider
Group’s overall transaction banking
requirements approached RBS, to discuss
their requirements in Australia.
After discussing the problem in detail, the
bank suggested a solution which could
both centralise the transaction application
process at the company’s headquarters
in County Cavan, include an electronic
link with their local subsidiary in Australia
when required, and ensure fast and
effective processing of each new bank
guarantee by the bank’s office in Sydney.
‘We asked our trade finance bank in the
UK to arrange to issue the guarantee in
the name of their Australian subsidiary,
with a counter indemnity to the bank
from our UK company. All costs are then
recharged back to local subsidiary, which
works for us in terms of cost and control,’
says Kingspan Group Treasurer Kevin
Deery. ‘It means we have our guarantees
issued by our relationship bank and can
oversee the contracts agreed by our
international subsidiaries.’Initially the system has been implemented
manually, but plans are in place to migrate
to the bank’s online platform, MaxTrad.
‘With us being so remote from Australia
in terms of time and geography, it can be
hard for us to keep track of everything,’
Deery says. ‘Now they can come to us
in their own time zone and know that the
guarantee will be issued in a few days.
We can then manage that guarantee
through its life cycle.’
With the Australian process now up and
running, Kingspan is considering rolling
out the system to subsidiaries in Western
Europe, the Middle East and Russia,
Deery says. The company has made
several acquisitions recently, including
the Construction Group of ThyssenKrupp
Steel Europe, and Dubai-based Rigidal
Industries LLC.
‘The RBS solution has helped us manage
costs and increase control, supporting
our growth,’ Deery says. ‘As we continue
to expand, the bank’s capabilities in all
jurisdictions are a great benefit.’The bank has worked with Kingspan for a
number of years and was able to build on
that to provide a solution that would not
only cover the company’s requirements in
one country, but was also scalable, given
their continued overseas expansion. A
similar model can be rolled out to assist
with their transaction banking requirements
in business units around the world.