An Asia Pacific CFO Takes On Inflation -- to Win

by Cesar Bacani, 19 April 2011

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topics:
Business Expense Management Management

tags:
cash management cost management Henkel inflation operational excellence shared services treasury management

Who’s afraid of inflation? Virtually every company in Asia and elsewhere. Not only do surging consumer prices erode the value of cash on balance sheets (and there are billions of dollars sitting idle in this region). They also threaten to dampen consumption and thus revenues, and to cut profit margins as well.

So when China reported on April 15 that inflation in March represented a 32-month high (it came in at a higher-than-expected 5.4%), many a CFO’s financial antenna went on overdrive. In Singapore, inflation in the first two months of the year was tracked at 5.2% while India’s Wholesale Price Index rocketed 8.98% in the year to March.

In truth, the threat of inflation has been on the radar screens of Asia’s companies for some time. “We have been facing some challenges, including the price increases in raw materials,” says Ben Ho (pictured), Regional Vice President for Finance and Controlling, Asia Pacific, at Henkel, the German giant in laundry and home care, cosmetics and toiletries, and adhesive technologies.

Being in the product lines that it is, the company is particularly vulnerable to inflationary pressure, although its large industrial additives business in Asia provides a substantial cushion. Henkel has strong pricing power on the business-to-business side, where it is relatively easier to pass on price rises in adhesives, films, inks and coatings to downstream industrial users.

“But on the consumer side, we are seeing very stiff competition,” admits Ho, a situation that makes raising end prices difficult. “We can pass on only part of the increase [in oil prices and raw material costs] to our customers.”

Henkel’s consumer brands in Asia Pacific include Dial and Fa body and fragrance products, the Citré Shine line of shampoos and conditioners, Persil detergents and Renuzit air fresheners, which are duking it out with the likes of P&G, Unilever, Colgate-Palmolive and other international and homegrown products.

Cash Management

Henkel is tackling the problem on a number of fronts. “We will pass on the price increases to the end consumer to a certain extent,” says Ho. “We will also enhance innovations and cost controls.” As CFO, he is focusing particularly on cost management and operational efficiency to help contain price increases.

Ho says that Henkel Asia Pacific has been lucky. “We started consolidating cash management in Asia two years ago, after we acquired National Starch in 2008.” Henkel paid Akzo Nobel £2.7 billion (US$4.4 billion at the current exchange rate) to acquire National Starch’s adhesives and electronic materials businesses, which Henkel said perfectly complement its own adhesives assets.

Deutsche Bank was Henkel’s primary banking provider while National Starch had a relationship with HSBC. The different platforms needed to be integrated. It took several months to “review all the different banks and their solutions,” Ho recalls. “At the end of the day, we decided, together with headquarters, to go with the solution from Deutsche Bank.”

With most regional cash management activities now on the Deutsche Bank platform, Ho says Henkel was able to improve operations excellence. Cash functions were centralized in Manila, where a treasurer reassigned from Germany manages regional treasury operations. The unified arrangement allows Ho and other executives to see how much cash Henkel has at any one time, making it easier to deploy or invest of idle assets.

CFO innovation ASIA

An Asia Pacific CFO Takes On Inflation -- to Win

An Asia Pacific CFO Takes On Inflation -- to Win

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