Louis Au Yeung, group treasurer at Hong Kong's Orient Overseas (International) Limited (OOIL), has had a rocky ride during the past two years. The global shipping company with $4.4 billion in revenue last year saw trade volumes plummet and then watched Asia rebound. With Yeung's team of 13, five dedicated to finance and eight to cash management, he's helped the company navigate stormy seas and catch the market upturn.
Please describe OOIL's treasury.
The OOIL Group adopts a centralised treasury operation in order to maximise cost efficiency through synergy of expertise, tax efficiency and technology advancement. As one of the major companies in Hong Kong with the most extensive multinational operations, OOIL is committed to full automation of its treasury workflow, while maximising electronic interface with its banking partners.
OOIL has a long standing relationship with its core bank which is committed to the transportation industry, possesses wide geographical coverage and provides comprehensive services. To complement its global transportation business, OOIL operates numerous local and regional bank accounts. There is direct interface between the bank's internet banking system and OOIL's disbursement system. Through this direct linkage, not only does OOIL manages its cash balances and executes payments, it also performs cash forecasting, currency risk management, working capital planning and makes short term investment decisions accordingly.
Other than automatic sweeping and pooling of bank balances which forms part of its established automated routine with its banks, OOIL also links its billing system with designated deposit banks. When a shipper makes a deposit to the banks in favour of OOIL, the banks' electronic systems will transmit relevant details to OOIL, thereby triggering a release in OOIL's billing system to empower the shipper to print the necessary bills of lading in the convenience of his own premise. OOIL has one of the most sophisticated IT business systems in the industry, and will continue to work closely with its banking partners to capitalise on other innovative electronic bank solutions.
How does the treasury handle the large number of payables and receivables in multiple currencies it receives?
Through the core bank's internet banking system, sweeping and pooling is performed on a daily basis, or whenever practical, thereby enabling the treasury team to assess the cash position by location and by currency. OOIL maintains separate bank accounts for receivables and payables. Only receivables accounts are swept and pooled. The treasury team reviews the pooled balances, then allocates the balances to short term investment, capital payments and funding of payable accounts. Currency conversion and hedging decisions are also made at the same time in accordance with cash forecasts which are prepared and updated regularly.
In your opinion, what are the strengths and weaknesses of OOIL's treasury?
We are very pleased with our workflow automation and in particular the direct linkage of our cash management processes with our core bank's internet banking system. It gives us access to real time bank account information on a global basis, and enables the treasury team to address overseas treasury matters in a timely manner. This is crucial to any centralised treasury structure.
However, OOIL is a geographically dispersed organisation, with operations in over 50 countries. Whilst a centralised treasury has the benefits of scale and cost efficiency, unique local circumstances can be overlooked and local in-house expertise is unavailable. In addition, even though having one single core bank does have many advantages, it does not cover all our office locations, and therefore we do employ the services of local banks. Sweeping and pooling of cash balances are not always possible in these instances because of incompatible systems. Banking information from the local banks may be delinquent as well.
Global trade volumes have been volatile during the past two years. How has treasury worked to mitigate the impact of this on OOIL's bottom line?
OOIL is one of the major global players in the transportation industry. The dramatic economic downturn has indeed led to a precipitous drop in our business volume of some 30% in 2009. As a cost centre, treasury took on a conservative approach in risk management and actively explored and pursued all cost saving opportunities. Our deposit policy was amended to focus more on counterparty risks rather than the level of yield. We implemented a new cash planning system, staggering the quantum and tenor of deposits in proportions to forecast cash requirements to ensure availability of liquidity. We also reduced the bank float maintained by local offices consistent with decreased activities. Apart from cash conservation, we participated in some leveraged structure financing which effectively lowered our cost of funds to below market levels.
OOIL's revenues declined by 33% last year to $4.35 billion and the company posted a net loss. What is treasury's role in returning the company to profitability in 2010?
Market and financial indications are that the worst of the economic downtown is probably behind us. We have just announced our first quarter business data with our revenues up by 18%. As a result of improved revenue and increased cash generation, the company is now in a position to soften its conservative cash preservation policy. Treasury is now given more latitude in the selection of capital preservation and short-term investment products.
Of the global economies, Asia seems to have the most vigorous recovery. OOIL is quickening its pace of expansion in China. So there will be major focus for treasury to develop a more sophisticated and comprehensive cash management system in China, a system that properly manages a restricted currency in a vast country with occasional seemingly anomalous legislations.
Looking ahead, what plans do you have for OOIL's treasury?
Our treasury function has served us well in the past many years. Our in-house automated cash management system perfectly complements our cash management process, catering fully to the specific requirements of our business. However, like all in-house systems, it is limited because it was created for very specific applications, and with only limited resources in our treasury team, we are not able to develop it in tandem with our core bank's internet banking system. We do have a need to look for an external e-treasury system with broader capability, complete with extensive customer support.
In addition, we will provide training to our treasury staff on different aspects of our business operations so that treasury will be better integrated with the company's business. And we will also recruit, whenever possible, from operations colleagues who are interested in treasury management. We have recently started on that and the result is most gratifying.
