Breaking new ground in global treasury operations with HSBC

When the world’s largest canned tuna producer wanted to streamline liquidity flows and cut funding costs to support a global expansion from its home base in Thailand, they turned to HSBC for help.

The company

Since its inception in 1977, the Thai Union Group has grown into a leading global seafood processor and exporter, widely regarded as the largest canned tuna producer in the world. In 1994, the company listed on the Thailand Stock Exchange with a market capitalisation in excess of USD2.5 billion. While the company is perhaps best known for its canned tuna business, Thai Union also processes a host of seafood such as shrimp, sardines, mackerel, crab, salmon, scallops, herring and even chicken-based products. In addition, they produce a wide range of ambient shelf-stable goods, value-added and pet food products, and a host of chilled and frozen seafood.

Today, Thai Union manages a rich portfolio of trusted global brands including Chicken of the Seas in the US; John West, Petit Navire, Mareblu, Parmentier, King Oscar, Rugen Fisch in Europe; and Fisho, Bellotta and Marvo and Sealect in Asia. The organisation owns production facilities in 12 countries across five continents including North America, Europe, Africa, Oceania and Asia, and sources seafood raw material in every ocean, from the Atlantic to the Pacific and Indian Oceans.

In addition, the company’s diversified sourcing and processing strategy provides them with the flexibility to optimise their global supply chain in order to deliver top quality products in a timely and cost-efficient manner to consumers all over the world.

In 2015, Thai Union Group reported record year for sales revenue, reaching an all-time high of THB125.3 billion (USD3.57 billion), which represented a 3.1 percent increase over the previous year’s THB121.4 billion
(USD3.46 billion) revenue. The company continues to drive growth through three key strategies: organic growth, food innovations and mergers and acquisitions. In 2015, Thai Union engaged in three new businesses: Orion International, a major lobster supplier in the US; a joint venture with Savola Foods Company, the largest consumer goods producer in the Middle East; and most recently, an investment in Rügen Fisch, Germany’s leading shelf-stable seafood company.

The challenge

However, as the organisation continued to expand all over the world, it became increasingly difficult to maintain visibility and control over overseas operations, streamline liquidity flows and optimise funding costs.

Most notably, the treasury department was faced with growing inefficiencies due to largely manual transfer processes that meant the flow of funds was tracked by hand in order to ensure the money arrived in the designated account on time. Not only was this process extremely time consuming and prone to human error, it also prevented the company from making transfers as often as they would have liked, which in turn meant they were unable to maximise internal funding, resulting in higher loan costs.

Having partnered with HSBC since 1996, Thai Union was keen to explore how they could further work with the bank to improve liquidity in their global operation. Already armed with a working knowledge of the company’s treasury department, HSBC and the bank’s team of liquidity experts in Singapore and Thailand set about developing an in-depth understanding of the existing structure and challenges the company faced, with a view to streamlining the management of fund flows across continents and between time zones to improve working capital efficiency.

The solution

In order to help overcome the obstacles faced by Thai Union and leverage the company’s impeccable reputation in Thailand, HSBC came up with an innovative solution that completely transformed the treasury department. The solution also created the country’s first cross-border sweeping arrangement, enabling the organisation to sweep true end-of-day balances into the Bangkok treasury department automatically, streamlining liquidity flows and freeing up funds stuck in the business.

HSBC provided a unique cross-border sweep featuring zero balance for British pound, US dollar and Euro transactions, which were fully automated using a Global Liquidity Engine (GLE) and HSBCnet – HSBC’s online banking platform. In addition, this platform enabled the treasury department to track intercompany loans, calculate interest and withholding tax automatically.

Because the treasury function is firmly located in the group headquarters in Bangkok, HSBC also guided Thai Union obtain a Treasury Centre Licence from the Bank of Thailand in June 2015, as well as an International Headquarters Licence (IHQ) from the Minister of Finance in August 2015.

The Bank of Thailand Treasury Centre Licence offers a host of benefits, reducing transaction costs, increasing efficiencies and helping the holder gain a competitive edge. However, more specifically the licence enables the company to perform tasks such as payments and collection, netting, FX management and liquidity management on behalf of the entire group of companies, and certain functions such as cross-border cash concentration are not permitted without it.

Similarly, the IHQ from the Minister of Finance offers Thai Union a host of benefits, most notably in the form of attractive incentives including a corporate income tax (CIT) exemption on qualified service income received from overseas, a reduced CIT rate of 10 percent on the qualified income received from an associated enterprise in Thailand, and exemption on withholding taxes pertaining to dividend and interest payments to overseas entities.

During the implementation of this solution, Thai Union executives in Bangkok and further afield worked closely with HSBC’s dedicated local and regional implementation manager to help steer this complex project. A critical role, the project manager not only coordinated with each of the diverse countries involved in this project, but also acted as the main point of contact in terms of documentation, implementation, testing and training, right up until the time to service was running smoothly. Even after the liquidity solution was fully operational, the implementation manager continued to provide ongoing support, helping to solve any teething problems that arose as the treasury team became better acquainted with their new solution.

The results

As a result of HSBC’s innovative solution, Thai Union was able to optimise efficiencies in treasury management by automating a host of previously manual tasks, unlocking cash that was sitting idle in accounts all over the world to help boost internal funding and increasing visibility across the group.

With the solution fully implemented, the treasury department freed up approximately USD40 million from its overseas subsidiaries, sweeping this cash back to the Bangkok HQ, significantly reducing company debts in the process. Since then, the group has also saved on average USD800,000 to USD1 million typically spent on external borrowing costs each year, making a considerable saving for the company. And finally, because the treasury department automated many previously manual processes, the team reduced the propensity for human error and freed up time to focus on other, more important projects.

A first for the country, this ground breaking partnership between Thai Union Group and HSBC also earned the company a new award. The structure was named Best Forecasting Strategy at the Corporate Treasurer Awards 2015.

At a glance

1. Established in 1977, the Thai Union Group is a leading global seafood processor and exporter, widely regarded as the largest canned tuna producer in the world
2. In 1994, the company listed on the Thailand Stock Exchange with a market capitalisation in excess of USD2.5 billion
3. The company produces a wide range of ambient shelf-stable goods, value-added and pet food products, and a host of chilled and frozen seafood
4. Thai Union Group owns production facilities in 12 countries across five continents, sourcing seafood from every ocean in the world
5. HSBC worked with Thai Union to streamline the management of fund flows across continents and between time zones in order to improve working capital efficiency
6. The bank’s innovative solution created the country’s first cross-border sweeping arrangement
7. The solution enabled the company to sweep true end-of-day balances into the treasury department automatically
8. HSBC also helped the company obtain a Treasury Centre Licence from the Bank of Thailand and an International Headquarters Licence from the Minister of Finance
9. Once the solution was implemented, a host of previously manual tasks were automated, unlocking cash sitting idle in accounts all over the world to help boost internal funding.
10. The structure was named Best Forecasting Strategy at the Corporate Treasurer Awards 2015