Award for business partnering for value added: Volvo Cars
Volvo becomes a more powerful beast – fuelled by ambitious treasury strategy. Bija Knowles reports
Setting up a global treasury operation almost from scratch for one of the world’s leading car makers is a once in a lifetime opportunity for a corporate treasurer. With just five staff, one commercial bank, accounts scattered across the globe and hardly any financing in place, the challenge seemed huge. But it’s one that the treasury team tackled with determination. “Coming in and seeing we had over 150 bank accounts all over the world was a very challenging position, so getting collections right was our first priority,” said Elisabeth Mosseen, VP group treasurer, Volvo Cars.
Mosseen joined Volvo Cars treasury in 2012 and, since then, the treasury team has grown to 30 members and has contributed tangibly to strengthening the business. Mosseen admits the team really had to think big to succeed: “We decided on a road map with a very ambitious target: to be a world-class treasury function within five years.”
Founded in Gothenburg in 1927, AB Volvo sold its subsidiary Volvo Cars to Ford in 1999. The company was then sold on to the Zhejiang Geely Holding Group, a Chinese auto conglomerate, in 2010. Under Geely’s ownership, Volvo Cars has gone from subsidiary status to independent entity, hence the need to restructure and grow the company’s financial operations.
Geely’s chairman, Li Shufu, said at the time his aim was to “release the tiger” in Volvo Cars. To do this, Shufu needed support from a powerful financial machine. Mosseen and her treasury team had a mountain to climb. Volvo Cars’ head of treasury risk management, Daniel Aspenberg, explained how different the treasury’s priorities were in 2010: “It has truly been a funding journey. Back then, the terms and conditions were a world apart from what we see today: it was basically a hunt for funds at whatever cost.”
This has changed dramatically and, with 26 trusted banks now in place globally, the avenues for financing have opened up. In May 2016, Volvo Cars issued the first bond in its 89-year history: €500 million-worth of five-year notes. In December that year it followed up with SEK5 billion-worth of preference shares. Standard & Poors rates Volvo Cars BB+ and this year Moody’s upgraded the firm to a Ba1 rating.
In 2015, a supply chain finance programme was put in place and, as Daniel Ahrman, head of working capital solutions at the firm, explained, the programme has brought multiple benefits: “We’ve worked closely with the procurement team and suppliers to promote the ‘preferred buyer’ concept, which is really important for the business as well as for treasury. This has in turn improved our working capital position and the cash conversion cycle.”
The group has refocused its product portfolio on electric and hybrid vehicles, as well as self-driving cars. Treasury kept step with these innovations and provided sound financial advice during crucial business decisions. “We were very much advisors, in particular when the company was deciding whether to expand into the US. Treasury played an important role in that decision and one of the criteria was that it would reduce FX risk,” said Mosseen.
Headquartered in Sweden but with production in China, the US and Europe, as well as sales in 100 countries, FX risk management is a key treasury activity. But Mosseen is adamant this is a company-wide issue. “Where possible we use natural hedges and treasury has actively educated the business operations on how this technique can reduce FX exposures.” It now has a hedging strategy that goes out four years, using a cash flow at risk model, which has reduced hedging costs.
And what about the 150 bank accounts that needed streamlining back in 2010? Pernilla Sandberg, head of cash management and settlement, explained how the company has come a long way in rationalising its cash and account management. It now has internal banks in China, Europe and the US, with a ‘payments on behalf of’ (POBO) structure and 95 per cent of payments routed through Swift, as well as using XML globally for payments, statements and direct debits. Sandberg said: “I admit it hasn’t been a straightforward journey but I’m proud of the competence that we have built up when it comes to the technical formats.” As for the cash, it’s much easier to track and control with 18 cash pools and zero-balancing accounts linked to the internal bank. The team is now setting up virtual accounts for some Asian countries for incoming dealer flows. Sandberg added: “We’re trying as much as possible to understand the needs and pain points of the business and to ease the manual work there.”
Finally, as Volvo Cars’ head of risk analysis and control, Eva Christianson, explains, the company’s financial IT landscape also had to develop rapidly to match the treasury’s evolution: “We are constantly improving and developing the use of the systems with a focus on automation, while ensuring the availability of system competence in-house and through collaboration.”
With support from treasury’s sleeker financing and cash management, Li Shufu may yet succeed in releasing Volvo’s inner tiger.