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Liquidity Management

AVX rationalizes bank structure by 75 percent with full treasury transformation

New optimal structure helps redeploy idle cash to improve working capital efficiencies


About


Headquartered in South Carolina, USA, AVX Corporation (AVX) is a leading manufacturer and supplier of advanced electronic components with 29 manufacturing facilities in 16 markets globally.

AVX employs more than 15,000 full-time staff globally and reported revenues of $1.8 billion in 2019, with over 30 percent attributed to the Asia Pacific (APAC) region.

 

The challenge


Having gone through multiple rounds of acquisitions, AVX’s banking and treasury organization had become highly decentralized. Without a central structure in place, cash balances were scattered across the various markets that it operated in, resulting in poor visibility and control of its liquidity. Its operations in APAC were particularly sub-optimal, with the firm facing the following challenges:

  • Decentralized banking structure with more than 100 accounts and over 30 banking relationships, resulting in excessive operating costs.
  • Ineffective use of liquidity with over $100 million in idle operating balances spread across 10 countries, including majority of cash trapped in restrictive markets such as China and Korea that yielded minimal returns.
  • Expensive FX conversion costs as the firm had to convert funds into multiple currencies and maintain local currency accounts to meet working capital needs across markets.
  • Inefficient day-to-day banking processes for cross-border, tax and non-bulk payroll payments that relied on paper-based documentation and in-person visits to physical bank branches.
  • Manual month- and year-end account reconciliation that still utilized traditional applications such as Excel spreadsheets, requiring significant amount of time devoted to manual processes.
  • Limited connectivity between its operations in APAC and EMEA, resulting in a lack of visibility and controls of funds.

AVX set out on a treasury transformation journey to support the firm’s ongoing expansion needs, including identifying a single banking partner to provide a full spectrum of cash, liquidity and FX services.

 

The solution


Collaborating with J.P. Morgan, AVX implemented a multi-entity, multicurrency notional pool in Hong Kong to centralize liquidity across 26 entities in 10 markets through an automated two-way cross-border sweep structure. To ensure restricted markets were included, the bank worked closely with the U.S.-based manufacturer in obtaining regulatory approvals from the China and Korea central banks to integrate AVX’s local entities into the cross-border liquidity solution; making AVX one of the first companies to connect a Korean entity into a regional notional pool through automated sweeps. 

The regional solution is also equipped with multi-bank sweeping and reporting capabilities to facilitate the movement of funds between in-country third-party banks into the pool, while ensuring AVX has complete visibility into residual balances across its accounts. AVX is looking to further leverage J.P. Morgan’s Follow-the-Sun mechanism to fully integrate liquidity in the Hong Kong pool with the firm’s EMEA cash pool in Luxembourg, which will enable the team to seamlessly utilize balances across regions within the same day, and eliminate any loss of value of funds. 

With J.P. Morgan’s support at both the regional and global level, AVX can now also seamlessly execute capital injections from its notional pool in Hong Kong or the U.S. into restricted markets in APAC to effectively manage working capital. One such case was when AVX needed to urgently move a large sum of funds to support a manufacturing project in Thailand – a highly restricted market. AVX worked closely with J.P. Morgan to ensure proper regulatory documentations were in place to execute the cash injection seamlessly, while also determining the right timing to conduct the transaction to effectively reduce FX risks. 

Aside from the liquidity structure, AVX also deployed several digital solutions to overhaul its manual workflows including:

  • Optimizing funds in restrictive markets like China, India and Vietnam by automatically investing a target set of end-of-day onshore balances in high yielding unitized time and call deposits, and any excess cash thereafter invested into smaller units of deposits to maximize yields.
  • Digitizing the submission of supporting documents for cross-border and statutory tax payments through virtual branches to free up manual resources and improve efficiencies.
  • Streamlining FX processes by establishing a transparent rate mechanism that automatically prices AVX’s payments and receipts in nearly 40 currencies without having to maintain individual currency accounts, eliminating non-functional currency accounts that saves on costs while improving reconciliation and reporting.
The execution of this project was first-class, and it made a big bank feel small. The end-to-end implementation was extremely well-coordinated, the transition from implementation to go-live was seamless, and completed in time, enabling us to mobilize cash across markets during the peak of the COVID-19 pandemic

Doug Knebel, Treasury Director, AVX Corporation.

The results


  • A 75 percent rationalization in banking structure and 52 percent reduction in bank accounts, resulting in an estimated $175,000 in cost savings per annum.
  • Saving $100,000 in annual costs as a result of improving efficiencies through self-funding of working capital through the regional cash pool to fund local business needs, including mobilizing cash out of restricted markets.
  • Enhancing FX conversion processes by automatically converting incoming funds to foreign currencies through visible FX rates, with over $75,000 in savings.
  • Generating higher yields on overall regional cash balances via enriched investment options.
  • Reducing significant man-hours through Virtual Branch and unitized time and call deposit solutions to digitize highly manual treasury and investment processes.
  • Improving visibility and control of liquidity, as well as the ability to track cash balances and intercompany positions in real-time through a single banking portal.
The solution has been truly transformational for AVX, generating significant benefits in terms of cost savings and efficiencies for the firm. The success was the made possible as a result of the tremendous efforts and coordination between AVX and J.P. Morgan’s working groups.

Morgan McGrath, Head of International Banking for Commercial Banking, J.P.Morgan

AVX Corporation was recognized as the overall winner in the Best Cash Management Solution category at the Treasury Today 2020 Adam Smith Awards Asia – widely known as the industry benchmark for treasury excellence. Listen to episode 4 of the Adam Smith Awards Asia podcast series to learn more. 

 


To learn more about how we can support your business, please contact your J.P.Morgan representative.

 


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