by Andre Bloemen, Head of Treasury & Structured Finance, Bombardier Transportation
Working capital optimisation is an objective for corporations globally, but this may require quite different approaches in each case. For example, for many companies, optimising collections by linking payment terms to counterparty risk, and implementing more efficient collections processes is a priority. For companies such as Bombardier Transportation, which has a highly rated customer base with a strong payments record, treasury has had to find alternative working capital solutions, as Andre Bloemen, Head of Structured Finance and Treasury at Bombardier Transportation explains.
Bombardier’s Aerospace and Transportation functions have separate treasury centres: Aerospace is managed in Montreal, while we manage the Transportation treasury in Zurich. With the exception of placing deposits and loans and the actual trading of currencies and derivatives, which is handled in Montreal at the group’s head office, all other activities for Transportation, including advisory to divisional and project management and back-office processing, take place in Zurich.
The Transportation division alone has 62 production and engineering sites in 25 countries and more than 40 service centres at customer locations, so managing FX risks is a key treasury priority. In addition, however, working capital has become increasingly important, particularly as customers are pushing for extended payment terms. For example, although most customers are national railways that have very low cost of funds, the governments that fund them aim to delay major expenditure, even though the final cost may be higher if suppliers need to include the cost of extended payment terms into the contracts.
Reviewing alternative solutions
Declining days sales outstanding (DSO) has a major impact on our business, so we needed to find new ways to manage working capital without affecting our core ratios. The way we approached this was different from some other industries, in that our customers are highly rated and have a very strong payment record. Therefore optimising collections would not be beneficial for us. Instead, we engaged with our banks that were able to offer alternative financing solutions and share experiences and best practices from other customers.