• bank accounts
  • digital transformation
  • eBAM
  • SAP S/4 HANA

Generating treasury transformation from within

Feature-image

HP’s treasury team has demonstrated its strategic importance to the business through its treasury transformation programme, with total savings in the hundreds of millions of dollars.

by Ben Poole

Published: 12 January 2021

Significant additional budget is not always necessary when implementing a treasury transformation plan. HP’s treasury provides a good example of how to create efficiencies and savings by addressing treasury structure and processes simultaneously. These efforts are now delivering proven financial results as a result of HP’s treasury transformation project.

“When I initially went to the CFO four years ago, I asked her for US$4 million to fund the transformation” reflects Zac Nesper, SVP & Treasurer at HP. “She said we had her complete support, but that we would need to self-fund the project. We went to work to find creative alternatives, and quickly found some savings in our bank fees to kickstart a virtuous cycle of transformation”.

Zac Nesper, SVP & Treasurer, HP Inc.

In its treasury transformation, HP sought to to modernise and standardise banking infrastructure, optimise cash management, upgrade treasury technology to the SAP S/4HANA platform, and optimise capital structure to withstand any economic event. Alongside these key pillars of the transformation, it has also looked to reskill its treasury team, with a focus on digital skills.

To achieve these goals, the treasury set up a dedicated team with a heavy focus on project management, which relentlessly followed the plan over the next four years, staying on time and on budget throughout the project.

Seeing the results

In the four years of the transformation project, HP’s treasury has closed down 323 bank accounts, and 80% of its accounts are now connected via Swift.

“The transformation of our banking infrastructure freed up large amounts of available liquidity that had been trapped, which is now available for investment and alongside our strong free cash flow is helping enable over US$1bn per quarter in share repurchases” says Nesper. “I have 100% daily visibility to our cash in every bank account around the globe”.

Treasury has been able to rationalise its bank account infrastructure across the US, all of Europe and most of Asia. It has significantly reduced bank fees by about 60%, while still retaining a collection of transaction banking partnerships, including Citi, Bank of America, BNP Paribas, HSBC, and J.P. Morgan.

On the treasury technology side, in September 2020 HP’s treasury went live on SAP S/4HANA, and has also implemented FIS eBAM to have all bank account information consolidated in one place. With this additional visibility, the treasury has been able to simplify its bank account management structure by closing down 27 banking relationships.

Well set for 2020’s challenges

The treasury transformation work that HP had been putting in place stood it in good stead  for 2020, and the unexpected challenge created by the Covid-19 pandemic. With some of HP’s PC and print factories in China and Southeast Asia coming to a standstill in February 2020 due to Covid, the capital structure that Nesper and his team had implemented came to the fore.

“Our collections slowed materially given our 30 day DSO, but we continued to have payables because they were on a cycle closer to 90 days” Nesper explains. “The work and planning we had done in the prior years of the transformation paid off.”

With visibility over every penny in every HP bank account, HP’s treasury could manage the liquidity fluctuations of Covid without incident. The team borrowed additional commercial paper before the market shut down, and accelerated the completion of a US$1 billion addition to its revolver that was previously planned.

Treasury strategy enabled HP to protect its customers and suppliers during the crisis. Within two weeks, the team lined up nine banks and five insurance companies to provide liquidity to its partners, and the supplier network was carefully monitored for any signs of stress or distress. Treasury also used its new and better view of the markets to actively adjust its hedges as the business fluctuated and the dollar strengthened.

As well as having to deal with Covid, HP also faced a hostile takeover at the start of 2020. Thanks to the work done on the treasury transformation, however, Nesper and his team were able to help build a value creation plan for the business off the back of the transformation project. This plan was well received by shareholders and the takeover attempt was abandoned as Covid-19 accelerated.

Delivering value

A look at HP’s Q4 FY 2020 results announced in October shows that the company is managing well despite the extraordinary challenges presented by this year. It beat earnings expectations, generated US$3.9 billion of free cash flow, and returned US$4.1 billion to shareholders in dividends and repurchases. This was the highest return done by HP since the separation of the company in 2015.

With the treasury transformation delivering savings in bank fees and expenses, and generating greater interest income, the project has exceeded expectations.

“When I went to the CFO years ago and asked for the US$4 million, we had a net present value expected of the treasury transformation project of US$150 million” concludes Nesper. “Our latest estimate is several times that, most of which we are already realising each and every year at this point, based on initiatives that are already complete”.