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Unilever: Asias Largest Cash Management Project

by Toshio Maei, Regional Treasurer, Unilever, Raymond Hsiung, Vice President, Regional Sales Manager, HSBC and Russell Graham, Senior Vice President, Regional Head of Client Services, HSBC

n January 2005, Unilever Asia Business Group (ABG) awarded the largest cash management mandate in Asia Pacific to HSBC. The mandate covered all of Unilevers payments and liquidity requirements across 17 countries in Asia Pacific. The countries included in the project are Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Pakistan, Philippines, Sri Lanka, Singapore, Taiwan, Thailand and Vietnam. Unilevers ABG, which is based in Singapore, manages the Asia Pacific businesses across all 20 countries. Three of the countries (Nepal, Cambodia and Laos) are managed by other neighbouring businesses of Unilever. One of the key functions of the Asia Business Group is the Regional Treasury Centre (RTC) which is also based in Singapore. The RTC has OHQ (Overseas Headquarters) status granted to it by the Singapore government. Shared service centre functions supporting the RTC include the Mumbai Foreign Exchange Trading center (MFETC) and the Bangalore Business Process Operations center (BBPOC), both of which are based in India. The role of the MFETC is to execute foreign exchange transactions on behalf of Unilevers Asia Pacific entities. BBPOC provides invoice processing services to a number of Unilevers Asia Pacific entities. Local cash management is managed in-country by the local finance teams. Unilevers Finance Vision In 2002 Unilevers global finance team developed a World Class Cash Management Vision. The key components of this vision consisted of: 1. One Payment Interface (common interface to banks) 2. One Primary Bank in each region 3. One Payment Instrument (migration to electronic payments) 4. One Payment Process 5. Payment Factory 6. Global Cash Pools 7. Foreign Exchange Management

The Asia Pacific Regional Cash Management project was structured to address all the components of that Cash Management Vision. Tender process Unilever initiated consultations with a number of global banks at the beginning of 2004. The primary aim of these consultations was to enable Unilever to ascertain the viability of completing such an ambitious project. Once the ABG was convinced that the project was viable, internal selling began in earnest. Unilevers culture was historically characterised by devolved decision-making with local entities exerting strong control over the choice of bank providers. This was identified as a potential challenge for the ABG to address, if it was to centralise its treasury functions successfully. In consultation with Corporate Treasury based in Rotterdam, the ABG took the decision to provide a strong and visible senior-level sponsor in Asia Pacific to champion the project. Critical to the visible sponsorship was local level selling of the vision and benefits of the project by the Regional Treasurer who personally visited the majority of the countries. This was to prove a decisive factor in the success of the project. Working in close consultations with the ABG, HSBC made a conscious effort to independently assign its senior regional sales and local resources in the internal selling process targeted at helping the ABG sell its vision. The co-ordination effort across 17 countries was unprecedented.

summary
In January 2005, Unilever Asia Business Group (ABG) awarded the largest cash management mandate in Asia Pacific to HSBC, covering all of Unilevers payments and liquidity requirements across 17 countries in Asia Pacific. The authors of this article describe how Unilever chose its banking partner and how the various payments and liquidity solutions proposed by HSBC, fulfilling the companys Cash Management Vision, were implemented. Benefits to Unilever include cost benefits projected to amount to sevenfigure sums annually, plus improved cash visibility, and banking relationship management, high risk control, and regional control of internal cash flow.

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Central to maintaining the integrity of the selection process, the ABG developed a Bank Scoring Template to enable all key decision makers to have a vote in the selection of the primary bank. Every country, key stakeholders in the ABG, and Corporate Treasury were assigned a vote in the process. The voting was to be based on the RFP replies of the banks supplemented by local bank presentations and working sessions. This process was both crucial in ensuring the personal ownership of the project by all stakeholders as well as ensuring the integrity of the selection of the primary bank. Prior the final round of bank presentations, all local countries submitted their own local decision for the primary bank of choice. These votes were tallied together with those of the ABG and Corporate Treasury, which were completed immediately after the bank presentations. HSBC was the overwhelming choice as the primary bank partner. The key factors that swung the decision in HSBCs favour were: 1. Highly skilled advisory sales team 2. Superior product solution across 17 countries in payments and liquidity 3. Strong implementation methodology Advisory sales Before the issuance of the RFP, HSBC strategically invested a great deal of time and effort to thoroughly understand both Unilevers cash management structures as well as its internal formal and informal stakeholder structure. A strategy was formulated to engage in depth all the stakeholders at every level from head office in Rotterdam to the local country finance teams.
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Significant focus was placed on selling the expertise of the banks advisory sales team to the ABG, Corporate treasury and key local country decision makers. This was to prove critical in building the overall confidence in HSBCs ability to deliver on its promises. Central to Unilevers decision to select a primary bank was selecting a long-term Banking Advisor who could understand Unilevers needs in depth. Current business processes Before the implementation of the Regional Treasury project, Unilever in Asia maintained over 700 bank accounts for payment processing alone. Three different ERP platforms (BPCS, MFGpro, SAP) were used across Asia. Payment process Before the Regional Cash Management project, the payment process was highly fragmented with no commonality across different entities even within a single country. Unilevers commitment to Sarbanes-Oxley compliance, paired with the scope and size of Unilevers business and its geographic reach, all local payment instruments will need to be made available under the regional project. Cheque issuing was highly manual in a number of countries with cheque stocks stored in the local offices. Although electronic banking platforms were utilised by almost all countries, it was largely a manual download, upload function. Foreign currency payments were either individually keyed into banks electronic banking platforms or initiated via manual instructions. In some cases, different processes were in place for different payment types especially payroll payments.

All payment types will be supplemented by HSBCs integrated advising function.

Raymond Hsiung, HSBC

Liquidity management Although a number of Unilevers Asia entities generate billions of dollars of surplus cash flow yearly, the majority of the entities were utilising shortterm bank borrowings to fund its operating expenses. Local liquidity management, though practiced in some countries was patchy. Given the large number of banking accounts, it was highly challenging to obtain accurate cash positions locally. It was practically impossible to obtain accurate regional cash positions. Surplus cash was not utilised regionally to manage down short-term borrowing requirements. Limited yield management techniques were practised. Solutions Payments A host-to-host solution will be implemented to enable the RTC to send files for all payment types through the single delivery channel. This delivery channel will also be used to deliver local language payment files. This single delivery channel will enable Unilever to eliminate manual processing for all payment types from local currency payments, cheque issuance and foreign currency payments. All payment types will be supplemented by HSBCs integrated advising function. This will serve both to notify Unilever vendors of payments made by Unilever and to enable local Unilever entities to be notified when payments have been processed by the RTC on their behalf. HSBCs payment platform will also cater for all local language payment requirements without the need for any pre-advising. As Unilevers ERPs are capable of generating local language files, these will be straight through processed by HSBC Connect without any further pre-processing to ensure
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total straight through processing. Real-time reporting for all banking accounts will be made accessible through the banks web based delivery channel, HSBCnet, which will be made available to all Unilevers entities in all 17 countries as well as the RTC functions. Local entities will have the option of using it to authorise payments processed through the host to host delivery channel. Liquidity management It is the ABGs strategic aim to utilise internal surplus funds to manage down short-term bank borrowing. Unilever has a mix of countries requiring funding and countries generating significant amounts of surplus cash. Historically, local entities in need of funding met their needs through local short-term borrowing from local banks in each country. The liquidity solution will consist of two layers with local pools to concentrated surplus cash to a header account. Where permitted by regulation, these local pools will be linked to a regional USD pool owned by the ABG in Singapore. The local sweep structures will be a combination of two-way ZBA (Zero balance accounts) and Peg sweeps. In countries where sweeping is not permitted by regulation, notional pooling will be set up to minimise interest expense and improve yield on surplus cash. All local entities will maintain their USD accounts with HSBC in Singapore which will be linked together through a ZBA to the regional USD master account. Where possible, those accounts in local currencies will be swept to a header account locally which based on a targeted amount will be swapped into USD to be concentrated into the RTC master header.
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1. Primary bank structure payments

Quantitative cost benefits are projected to exceed USD 2m per annum.

Benefits to Unilever The benefits to Unilever from this project will be significant. Quantitative cost benefits are projected to exceed USD 2m per annum. Incrementally, cost benefits from process improvements are projected to amount to seven-figure sums per annum. Qualitative benefits will include: 1. Improved cash visibility across the region 2. Improved cash visibility across entities in all countries 3. High degree of risk control for processing payments ensuring Sarbanes-Oxley compliance 4. Improved management of banking relationships 5. Regional control of internal cash flow Implementation approach At the time of writing, the implementation of the suite of cash management solutions described earlier is well under way. What follows should be considered as Part 1 of the implementation story.

A project of this size and scope represents major change for any organisation and, given the federal nature of the Unilever organisation in Asia, where local National Finance Directors have traditionally been masters of their own destiny with respect to the selection of local banking partners, receptivity to such changes could be expected to be mixed. It is appropriate to reflect on a famous quotation from The Prince, by Niccolo Machiavelli, as follows: It should be borne in mind that there is nothing more difficult to handle, more doubtful of success, and more dangerous to carry through than initiating change. the innovator makes enemies of all those who prospered under the old order, and lukewarm support is forth-coming from those who would prosper under the new. Against this backdrop, there are a number of key disciplines that are crucial in ensuring that such a project gets off to the best possible start and
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Toshio Maei, Unilever

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that momentum is maintained.

2. Account structure and liquidty management


Clear project governance and commitment of resources As this project moved from the selling stage into implementation, senior project sponsors were appointed in both Unilever and HSBC. The selection of appropriate sponsors was critical as they each need to possess the ability to wield a big stick if such is required to remove any potential roadblocks as the implementation progresses. A second critical step was the formation of the project steering committee. It was recognised that this must be a multi-disciplinary team encompassing all of the key stakeholders in the project. From a Unilever perspective this included the business users, operations, IT and tax. In addition to the steering committee, a variety of working groups were established mainly at an in-country level. These working groups are comprised of the doers those team members who will be completing the required actions to establish the required products and services and who will be using these services in the future. This commitment of resources is a critical success factor to the project as is the incentivisation of the team members. It is important that the success of the project is included as a key performance measurement for all parties i.e: what gets measured gets done. Roadmap to success All journeys of any length require a roadmap and the Unilever project is no exception. A key first step is to identify the critical path and to ensure that resources are fully aligned with this.
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The critical path must be founded on a series of logical stepping stones and in the case of this project these include the early establishment of the Senior project required bank accounts with HSBC in sponsors were each country (where they do not already exist) as well as the provision appointed in of access to these accounts via both Unilever HSBCnet. Following from this, is the and HSBC. setting up of the required in-country and regional liquidity management structures, accompanied by the host to host payments solution. A further critical success factor is to win over the hearts and minds of the key stakeholders. This involves identRussell Graham, ification of the key opinion formers HSBC within (and outside) of the project and the identification of the WIIFM (whats in it for me) factors. One absolute WIIFM factor will be the financial benefits that will accrue to the stakeholders as a result of implementing the local and regional cash management solutions. With this in mind, specific business cases have been created for each country that show the cost savings that will be generated from the cash management solutions described earlier. Additional benefits that will accrue

as a core part of this project relate to the opportunities to re-engineer processes that have been in place for some time and that have been developed independently in each country. This process re-engineering is being driven centrally by Unilever and HSBC with much local engagement with the in-country business users. Documentation A project of this size and scope clearly involves a great deal of documentation to support the provision of services by HSBC and to clearly define the roles and responsibilities of all parties. The ability to streamline and simplify the documentation process has been key to gaining significant early momentum or, put another way, it has been key to ensuring that the overall project does not become sidetracked. To achieve this, Unilever and HSBC have centralised the documentation process and appointed two senior and seasoned executives to negotiate the required documents on behalf of all stakeholders. This concentrated approach has ensured that all parties have a clear understanding of the impact and implications of the various
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documents and the clauses contained therein, and are better able to walk a mile in the other persons shoes during the negotiation process. It has also meant that for the various clauses that appear in multiple documents, these clauses are negotiated once and the changes agreed to are then applied across the remaining documents. Progress monitoring and escalation procedures The implementation of clear project tracking methodologies has been very beneficial from the outset of this initiative. This has enabled both Unilever and HSBC team members to remain focused on the many tasks that must be completed to ensure the success of this project and it has also enabled the steering committee members to focus on those items that require their attention. With a project as large as this, there is a great tendency for many people in each organisation to want to know everything about everything this can be referred to as noise in the machine. In such instances, the team members can easily be caught up in an endless reporting loop which detracts from their ability actually to execute the various tasks that are required of them. To avoid this, the project team has implemented a weekly reporting mechanism that enables the team to evidence the progress that has been made and also to highlight any slippages or delays versus the agreed project plan/critical path. This tracking document is circulated to the steering committee and is

reviewed each week with any required action items being agreed and documented. On a monthly basis, a status update is created for a broader audience. This update is a high level summary which highlights the progress made and identifies any potential areas for concern. Customer service It is never too soon to engage the incountry and regional HSBC Customer Service Managers who will look after the Unilever businesses in the future. Engaging the various Customer Service Managers at an early stage ensures that they have an in-depth knowledge of the solutions being implemented and also of the Unilever business model. This latter point is very important as it enables the Customer Service Managers to provide proactive and value-added service to Unilever going forwards and enables them to act as true business partners. Conclusion This initiative has been a career milestone in the Regional Treasurers tenure. The challenge of bringing off such a feat cannot be underestimated. For HSBC, the partnership is the beginning of a long and fruitful relationship which will continue to expand across geographies and product lines to the mutual benefit of both organisations. The Unilever cash management solution is rightly viewed as one more step in the process of redefining cash management in Asia Pacific for both Unilever and HSBC.

Toshio Maei
Regional Treasurer, Unilever Asia Business Group
Toshio Maei is the Asia Pacific Regional Treasurer for the Unilever Group. Toshio has been with the Unilever Group for the past 16 years. His vast experience spans the finance and management accounting functions within the Unilever Group in Asia Pacific prior to becoming Regional Treasurer. His previous role was the Chief Accountant for Nippon Lever (Unilever Japan) in Japan. Toshio is one of the most experienced finance professionals within the Unilever Group.

Raymond Hsiung
Vice President, Regional Sales Manager, Global Payments and Cash Management, HSBC, Singapore
Raymond Hsiung is Vice President and regional sales manager for HSBC. Raymond is a member of HSBCs Originations Team with responsibility for HSBCs top tier MNC client base. He started his banking career in the graduate management Fast track programme with Natwest Bank head office in London where he has worked in Personal Financial Services, Cards Business, and Corporate Investment Banking. Raymond joined Visa International as Asia Pacific regional sales director marketing to financial institutions (FIs) and non-bank FIs in the Commercial Solution group before he joined Bank of America GTS. Raymond has over 12 years global financial services experience.

Russell Graham
Senior Vice President, Regional Head of Client Services, Global Payments and Cash Management, HSBC, Asia-Pacific
Russell Graham is Senior Vice President and Regional Head of Client Services for Global Payments and Cash Management for Asia-Pacific, based in Hong Kong. Russell joined HSBC in 1984 and has undertaken a variety of roles in Retail and Corporate Banking as well as Finance and Training. He moved to the United States in 1993 and during his time there he was responsible for integrating the Corporate and Institutional cash management clients acquired from JPMorgan and Republic National Bank. Russell was also responsible for Client Services at HSBC Bank USA's centres in Delaware, Buffalo and New York. Russell holds a Bachelor's Degree in Mathematical Economics and is an Associate of the Chartered Institute of Bankers.

Unilever
Unilever is one of the worlds largest consumer brands companies. It operates in over 100 countries worldwide including 20 countries in Asia Pacific. Its Asia Pacific turnover exceeds USD 8 bn per annum, generating significant underlying free cash flow in billions of dollars yearly.

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