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TMI | Issue 245 17

by Yaling Zhang, CFO, Sany International Development Limited

How Sany is ManagingRapid International Growth

Chinese multinational Sany International DevelopmentLimited is the world’s sixth largest heavy machinerymanufacturing company, headquartered in Changsha,

Hunan Province. Sany was the first corporation in its industry toenter the FT Global 500 and Forbes 2000 rankings. The companyhas manufacturing locations across China as well as in Brazil,Germany, India, Indonesia and the United States, with around38,000 employees worldwide. In this article Yaling Zhang, CFO,describes some of the initiatives that Sany’s treasury functionhas implemented in recent years to manage the company’s rapidinternational growth and support future success.

Optimising domestic and internationalliquidity

Sany has a highly centralised approach to finance and treasury. Cashmanagement and financing takes place at our company headquarterson behalf of all business divisions and overseas subsidiaries, andallocates funds via group treasury which operates as an in-housebank. We operate cash pools both within and outside China, so whena business division receives funds, these are swept automatically tothe header account held by group treasury. Conversely, if a businessdivision needs to pay out funds, it submits an application to treasury,and on approval, the business unit pays the amount from theiraccount creating an overdraft which is automatically funded fromtreasury. All payments are subject to monthly budget planning andmanagement approval via a single system.

Given the capital controls that exist in China, we separate our

domestic and international cash pools. Domestic cash is centralised inChangsha, while cash generated from countries outside China (that isnot subject to foreign exchange (FX) controls) is centralised in HongKong. We also use intercompany trade to centralise cash that issubject to FX controls wherever possible. To connect our domestic andinternational cash pools, and therefore enable us to leverage liquiditymore effectively across the group, we applied successfully to set up across-border foreign currency cash pool and an RMB cash pool. Thisallows funds to be transferred from Hong Kong to China, and viceversa, within the permitted quota.

Supporting international growth

One of the most important changes to our business over the past twoto three years has been the shift in the proportion of our totalrevenue derived from overseas sales. In the past, only around 10% ofsales were generated outside China, but over the last two to threeyears, this has increased to about one third. This is the result of ouracquisition of Putzmeister three years ago, and year on year growthof around 30-40% since 2013, including both our domestic andinternational business.

It is not only the value of our international sales that has increased,but also our geographic footprint. Previously, our overseas trade wasmostly concentrated in developed markets in the United States,Germany, Singapore etc. Today, with the demand for constructionmachinery increasing dramatically in emerging markets of Asia, Africaand Latin America, a rapidly growing proportion of our business isderived in markets that are beyond our traditional remit.

Today a

rapidly

growing

proportion of

our business

is derived in

markets that

are beyond

our

traditional

remit.

Key Points� Sany has a highly centralised approach to finance and treasury and its domestic

and international cash pools are separated in accordance with China’s capitalcontrols

� Recent years have seen a significant increase in the proportion of the company’srevenue derived from overseas sales and a widening of its geographic footprint

� Sany’s treasury is working with banks and other large Chinese corporations to lockin exchange rates and share best practices

� The company has integrated SWIFT into its internal finance and treasury systemand connected each of its banks that support SWIFT, which provides daily andintra-day visibility over 200 of its international accounts, and has set up its own ITdepartment to help improve efficiency and control

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18 TMI | Issue 245

To support our sales activities in theseregions, and anticipate further growth inemerging markets, we have establishedrelationships with a number of local andinternational banks. This gives us access toin-country and cross-border cashmanagement services, but has also allowedus to expand our funding base. There arevarious implications of this. One is that weneed to support trade finance models ineach country, which adds complexity tocross-border trade. Second, we need toexpand our international cash pool in HongKong to reflect the increase in markets andbanking relationships. Exchange controls aremore likely to apply in these markets thanour traditional international markets, whichmakes it more difficult to centralise liquidityand manage our FX risk, problems that willbe familiar to many multinationalcorporations.

We are therefore working with our banks,and other large Chinese corporations, toexplore our options and share best practices.For example, we are collaborating withbanks and corporations to lock in exchangerates, setting FX quotas with our banks, andworking with other Chinese corporationswhen entering new markets to collaboratein exchanging local currencies.

SWIFT connectivity for cashvisibility and control

There are also risks associated withmanaging cash internationally. For example,there are credit risks, as well as FX risks,associated with holding cash in local bankaccounts. At the same time, we need tobalance risks with supporting business

growth on the other. We work with ourbanks to achieve this balance, using tradefinance tools, such as letters of credit andalternative financing techniques.Settlement risk for payments andcollections also differ in each country,particularly where significant political,economic or social risks exist, and again,this is an issue on which we collaborateclosely with our banks.

While working with different bankscreates opportunities, there are alsochallenges. In particular, communicatingwith each bank using different systems andin different formats is labour-intensive andresults in fragmented processes andcontrols. In addition, it is costly and time-consuming to integrate these disparatebank systems with our internal finance andtreasury system, CBS, which is provided byChina Merchants Bank. As a business, weare seeking to use information technologyto streamline, automate and increasecontrol over our processes whereverpossible. We recognised that SWIFTsupported this objective by offering us theopportunity to communicate with ourbanks through a single global platformusing a set of uniform standards, both forretrieving bank statement information andtransmitting transactions.

We therefore integrated SWIFT into ourinternal finance and treasury system andconnected each of our banks that supportSWIFT connectivity. As a result, we are nowable to monitor over 200 of ourinternational accounts on a daily and intra-day basis. While not all our banks areconnected to SWIFT, this is a minority, so wehave visibility over the vast majority of ourcash balances. In addition to monitoringand managing liquidity more effectively, wecan use this intelligence to analyse ourpayment activities and counterparties whilstalso reducing labour and material costs.

Future plans

We will continue to find ways to optimiseour international cash management in anenvironment of changing political, socialand economic pressures, and support futuregrowth. For example, as our operations inemerging markets in Asia, Africa and LatinAmerica expand and mature, we arelooking to improve our operational andfinancial efficiency in each market. Wecontinue to collaborate and learn fromother Chinese multinationals on the best

way to achieve this. Secondly, we areseeking opportunities to expand our use ofsophisticated technology for cash andtreasury management, including processautomation, analytics and riskmanagement. As part of this, we need tointegrate our cash and treasurymanagement systems more closely with ourbusiness systems which will streamline ourpayments, collections and cash forecastingprocesses. For example, by integrating ourtreasury system with our expensesmanagement system, we will be able toinitiate payments automatically onapproval of the expense claim or receipt.

Sharing experiences

Although we have built up significantexperience of cash and treasurymanagement in China, and rapidlydeveloped our expertise in internationalcash management, it is always important tolearn from other individuals andcorporations. This is part of our groupculture, and it is a very valuable way ofunderstanding and sharing best practices.Partly due to this collaboration, we havebeen able to introduce industry-leadingsystems and processes for financial planningand cash management, and while there isalways further room for improvement incash forecasting, we are now outperformingmost other companies both within andbeyond our industry sector.

As optimising our use of technology is apriority, we decided to set up our own ITdepartment, as opposed to relying solely onthe company IT department. Previously, itwas difficult to prioritise cash and treasurymanagement technology, and find thenecessary industry expertise, but now wecan invest directly in the tools we need, andcollaborate with banks, vendors and SWIFTto improve efficiency and control, and buildgreater reporting sophistication. In the past,we mostly relied on in-house developmentof proprietary applications but we are nowmaking greater use of third party systemswhich we are integrating with in-housesystems. In some respects, we have lostsome time, as we would have made progresstowards our operational and financialobjectives had we implemented andintegrated SWIFT earlier, but we are nowpositioned to enhance efficiency andcontrol and build a cash and treasurymanagement function to support futurebusiness success. �

We are

working with

our banks,

and other

large Chinese

corporations,

to explore

our options

and share

best

practices.

Yaling ZhangCFO, Sany InternationalDevelopment Limited

Yaling Zhang is CFO of SanyInternational DevelopmentLimited, based in Hong Kong.Yaling joined Sany in 2005and held a number of keypositions in the financialdivision, including financialmarketing and funds centre management. She receivedher bachelor’s degree from the Chinese University ofHong Kong and a master’s degree from ShanghaiNational Accounting Institute.