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The Corporate View
Deane Plummer
Treasury Manager, EURMEA
Deane Plummer joined Alcon in February 2009 as Treasury Manager, EMEA. He has worked in various roles with a number of
financial institutions in Brussels, Paris, Frankfurt, London and New York. Most recently, he headed the Cash Management Sales
Team for Deutsche Bank AG, based in Zurich, and was responsible for building up their presence in the Swiss market. Prior to
that he was EMEA Product Manager for Citibank Private Bank, Geneva, focusing on custody and cash management services.
Alcon, a Swiss headquartered multinational, is the leading provider of surgical, pharmaceutical
and consumer eye care products worldwide. The company has operations in 75 countries with over
12,000 employees and sales in 2010 of $7.18 billion. Recently acquired by Novartis, the company is
currently combining its operations with the pharmaceutical giant’s own vision care division.
Eye care manufacturer Alcon has had a distinguished
history. Founded in Ft. Worth, Texas in 1945, the company
grew rapidly and was acquired by Nestlé in 1978. A partial
IPO in 2002 saw the firm return to the New York Stock
exchange.
In 2008, Nestlé announced plans to divest its remaining
77% stake in Alcon and Novartis acquired a 25% stake
in the company together with an option to acquire the
remaining 52% stake, which could be exercised by July
2011. Novartis valued the transaction at $12.9 billion. “The
growth synergies are significant”, according to Novartis’
Chief Executive Joseph Jimenez, speaking when the final
stages of the deal were announced in December of last
year. The link up has been gradually taking place since
2008, with Alcon’s then President and Chief Executive, now
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Division head, Alcon, Kevin Buehler saying “This merger
will create a stronger eye-care business with broader
commercial reach” – which of course has implications for
Deane Plummer in the Treasury.
In preparation for this eventual spin-off, Alcon needed
to set-up a European Treasury Centre to takeover the
activities that, to date, had been undertaken by Nestlé in
Vevey. Alcon had also decided to set-up a shared service
centre for its European finance activities in Switzerland and
it was a natural choice to establish the treasury team along
side the SSC in Fribourg.
In this interview Deane Plummer tells the story of the
founding of the treasury and the challenges the merger
brings.
You were brought in to build the treasury in
Europe. How have Alcon’s treasury operations
changed since the spin-off from Nestlé?
Yes, I joined Alcon in February 2009 and a year later, in
April 2010, we added a second colleague. So we are a
pretty small team and one of my key objectives was to
automate as much as possible at the treasury level. This
was also the driving principle when we designed the new
AP process for the SSC. I was still surprised how much
of the day to day accounting and reconciliation work was
manual.
Initially, the treasury was operating through our then-
parent, Nestlé, which was responsible for activities
including global netting, foreign exchange, investment
and risk management. In some countries, Alcon entities
participated in their cash pools and benefited from some
inter-company financing, as well as sharing in their US CP
programme.
We needed Alcon’s European treasury to be able to take
on all these activities with a much smaller team. Whilst
our central treasury was based in Ft. Worth, Texas,
operationally, everything was executed out of Switzerland.
For example, Nestlé would execute FX deals, or invest
surplus, in the name of the Swiss company and book these
trades in their SunGard TMS. We received confirmations,
monthly revals, interest reallocation reports and so on from
their TMS. But all this changed as we disengaged and set
about putting in place processes, as well as systems, to
manage these activities.
For FX execution, we selected the 360T dealing portal
after reviewing Nestlé’s FXall system and Bloomberg; we
felt 360T was more user friendly and they were able to
customise reports for us to manage the monthly revals,
which we would have to do ourselves without a TMS at
the outset. 360T also had an interface to Misys, for deal
confirmations which, at the time, was used by us and
Nestlé.
Our transactions tended to be fairly vanilla – FX outrights
and FX swaps, mainly. Virtually all flows are managed via
Switzerland but with 360T’s setup our US colleagues can
also review our trades.
360T also enabled us to obtain quotes for short-term
deposits, but we found it is just easier to call up the bank
and do it directly. Decisions on how to manage strategic
cash were undertaken by our colleagues in Ft. Worth,
whereas short-term operating cash was managed out
of Fribourg. As a result, we had to set up a totally new
liquidity management structure, which is described below.
Can you explain your cash pooling structures?
We set up euro, sterling, Danish krona, Swedish krona and
Swiss franc cash pools in Europe, all of which are zero
balancing. The only exception to that is the Swiss cash
pool, which is notional, mainly because that was a structure
Nestlé had established and it was easier for the operating
companies to keep using the same bank rather than make
them set up new bank accounts, as well as accounting for
all the inter-company loans. We have a longer-term plan
to change this to zero balancing, but that has very low
priority – the system works well currently; the Swiss franc
flows are smaller when compared with our euro, US dollar
and sterling flows, and it was more important to automate
processes like AP.
With the euro pool we had to design the structure as
efficiently as possible, as well as minimise the impact on the
entities from an accounting stand-point.
Two main motivations lay behind our cash pooling strategy.
One, we wanted to gain visibility. That has become
increasingly important since the financial crisis – we do not
want idle balances sitting in banks with poor credit ratings.
Two, we wanted to redeploy cash effectively and quickly
within the business. Furthermore, where we had been using
bank facilities for working capital purposes, the banks had
been tightening conditions and margins significantly.
How do you manage your bank relationships?
An RFP had already been issued to six core banks
recommended by Nestlé when I joined Alcon. My first task
was to analyse these and then select a bank that met the
requirements of treasury and the SSC. We whittled this list
down to three banks of which – and you must remember
that this was at the height of the financial crisis – two were
government owned! In the end, we selected Citibank and
decided to have as much contingency in place. Ironically,
concentrating our cash with one provider actually enabled
us to manage the risk more effectively and efficiently.
We also automated sweeps from our other legacy banks
which were still primarily being used for AR. This was
“ One of my key objectives was to
automate as much as possible at
the treasury level … I was still
surprised how much of the day to day
accounting and reconciliation work
was manual.
”
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3. treasurytoday © June 2011 | 31
relatively new at the time – to move those funds from
the legacy accounts into the cash pool bank – and it has
worked reasonably well, but is still not ideal. There is a
cost associated with these sweeps and it is not optimal,
but for a small team that needs an automated solution to
sweep up the cash it certainly helps. We have a long-term
plan to shut down those legacy accounts, and this will now
depend on the outcome of the merger with Novartis and
their banking strategy.
In terms of AP, we opened new accounts with Citibank
across Europe and these were linked to the zero cross-
border target balance. As part of the contingency
measures mentioned above, we decided to join SWIFT to
give us flexibility in case we needed to move to another
provider or wanted to use one provider for a particular
country. In fact, we already had a single provider for
Scandinavia – part of our Nestlé legacy – as well as
having a mini SSC for the Nordic countries. In the end,
this provider was not ready to support the latest ISO XML
standards, which we also decided to standardise on.
We are one of the first corporates to use XML for both
payments and statements based on the new ISO 20022
standards. We looked at various formats that could be
generated from our JDE ERP system and decided that this
would likely be the new standard and would also give us
flexibility, as well as independence from a bank proprietary
format.
The problem with such early adoption is that Citi were not
always ‘live’ with the XML version of the payment type that
we wanted to use. However, they were happy to work
closely with us based on our priorities. For example, take
confirming payments in Spain. They worked with us, knew
our timelines and were very flexible in getting this set up.
We have not always received that level of service from other
banks, some of whom needed a lot longer to get ready, at
least to manage it in every country. Some global banks,
surprisingly, still do not seem to understand how a central
treasury operates and are very slow moving.
What are your funding arrangements?
Historically we have generated significant amounts
of excess cash – financing has never really been a
requirement unless it has made sense to take on external
debt. In countries where we have a thin capitalisation
problem, like Poland, bank debt has made more sense – at
least for the time being.
To operate the cash pools we agreed overdraft limits on
the Swiss entities’ accounts. That is only in case we have
a problem with our sweeps and the Swiss entity ends up
short of cash. Alternatively, when we have a lot of flows
into the trading company around the netting date it may
work to our advantage if we go short for a day or two on
the header account if we have been able to invest the funds
more effectively.
We do not have any bonds but in the past we had a
commercial paper (CP) programme in the US, backed
by Nestlé. That was not particularly unusual for our
structure – we had a lot of debt in the US and more cash in
Switzerland.
You have also been working on a commercial
cards programme. What have you achieved?
One area of AP that involved a tremendous amount of
manual processing and different approaches in each
country, is the settlement of individuals’ travel and
entertainment expenses. We have sales people in each
country and every time they see a client they fill in a
spreadsheet with expenses. That spreadsheet is sent,
along with all the receipts, to the SSC in Fribourg – you
can imagine the time and effort spent to submit that and
the time lag before getting paid back. Just the physical
transfer of the documents stretches that further. It takes a
lot of time and resources for very low level payments.
In the US, we already used the Concur Travel Management
system, and we decided to implement this in Europe,
together with a commercial card programme. We move
to a hosted version of Concur and all the expenses will in
future be processed through. Staff will have their expenses
uploaded from the card provider and then input their out-
of-pocket expenses. Once complete their manager, who
could, in some cases be located in the US, will receive
notification to approve the expense report. Doing this
online allows expense claims and approvals to be done
quickly across a lot of countries and significantly reduce
the paper flow.
We are in the process of rolling this out into Europe,
and started with a UK pilot in May. The staff processing
expenses should see benefits immediately, travelling staff
can stop pre-financing the company, and the firm as a
whole should see the benefits well within 12 months.
An additional benefit is the granularity of expenses data the
system provides. In the past it was hard to gain thorough
oversight on that. The commercial cards programme
gives us much more detail and widens the scope of these
activities. Another application of this is in VAT terms –
different countries have different rates, and an online,
aggregated system may enable easier VAT reclamation on
expenses when the manual process is often too resource-
intensive to be worthwhile. Purchasing management is a
key priority for the future and also an area where we look to
achieve greater savings from the merger with Novartis.
What are your main aims for the merger with
Novartis?
Alcon is more centralised in Europe than Novartis, although
they have embarked on a finance transformation project
and one of the challenges will be ensuring that the various
work streams, integration of Ciba Vision, SSC integration,
“ We wanted to gain visibility. That
has become increasingly important
since the financial crisis – we do not
want idle balances sitting in banks
with poor credit ratings.
”
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4. 32 | treasurytoday © June 2011
treasury integration and so on are all working in sync. We
don’t want to undo what has been achieved in the last two
years but we also want to benefit from Novartis Treasury’s
scale in other areas. We have already started working
closely together on credit management and country risk
exposure and this has already bought some immediate
benefits to Alcon.
In terms of integration, I see the situation becoming similar
to that which we had with Nestlé in the past – Novartis will
manage the strategic cash for us, execute FX trades to
manage our currency exposures etc. We will also join their
netting or clearing as they call it, too. They will take on a lot
of the operational activities, which is a good thing bearing
in mind there are only two of us in Alcon’s treasury. We
have been so busy with the day to day treasury operations
that we have not been able to look at areas like AR and
financing options where I think we can add more value.
Overall our operations combined should become more
efficient. Novartis will also be able to use our cash – they
have a fairly large investment management team because
they also manage the group pension. We will save costs
by using their SWIFT gateway, and on the FX side there will
be more opportunities for natural hedging when positions
offset each other, for example.
In terms of systems, Novartis uses SAP and is looking
to adopt SAP’s treasury module, so at some stage we
expect to migrate over to that. We are in a good position
and I believe Novartis are impressed with what we have
achieved here in just a couple of years – we are managing
13 countries for liquidity and AP, together with over 40
participants in the netting.
What projects would you like to undertake that
the merger will allow you to take on?
On the AR side there is currently very little standardisation. For
example, some countries have been direct debiting customers
when others are not, even though the clients are very similar. I
will look into whether that can be rolled out to every country.
That has led to issues in Scandinavia, for example. There
sometimes clients have wanted to use direct debiting but
could not because we do not offer it. We could also look at
lockboxes for cheque collections in some countries. In terms
of measurable impact that should help with our DSO if we can
process receipts in a more timely manner.
Personally, I am interested in electronic invoicing. We
already do this in Scandinavia because it is a requirement
to do business with certain state hospitals. We operate in
each country according to their standards but I think there
is scope to standardise that process and roll it out to other
markets.
In processes like this, treasury is acting as a consultant to
the business units to help them operate more efficiently.
The benefit for treasury is that we eliminate legacy systems
and get the cash more quickly. For example, in Austria we
are using the local bank system for direct debit which is all
very manual. Again, we would like to manage this centrally
through our ERP system. We are also developing the SEPA
direct debit capability to offer that through the Eurozone
countries.
With any of these projects there is the challenge of
persuading the customer to come on board, and we
need to make it clear they will benefit too. We certainly
understand the benefits: when receiving invoices we see
all sorts of different formats coming into the SSC. Benefits
on the customers’ side include more certainty on payment
timings, for example, and they also gain in terms of
visibility.
In places like Finland, most state-run hospitals have
a standard format and transmission processes.
Unfortunately the private clinics do not so we have to come
up with bespoke processes and tailor each invoice to each
client.
It would be very helpful if country standards emerged
and I think most customers would hope for a standard
to be adopted – SWIFT, for example, has been doing a
lot of work in that area. I certainly see potential here for
efficiency gains for all kinds of companies in future. n
“ Treasury is acting as a consultant
to the business units to help them
operate more efficiently. The benefit
for treasury is that we eliminate
legacy systems and get the cash more
quickly.
”
The Corporate View