Photos: DONG Energy A/S
Anne Heidemann and Kim Japp have been on the front lines of transforming the organisation’s finance processes.
Heidemann heads the treasury front office and is responsible for optimising funding across the group, including cash management, hedging and risk. Japp heads DONG Energy’s shared services centre, with a mission to deliver reliable processes and continuous improvement in efficiency.
They remember first-hand the scale of the task involved in managing payments to the company’s subsidiaries and joint ventures – more than 200 legal entities in total – and how the decentralised structure made it impossible to get a complete view of the company’s funding and liquidity.
“Merging multiple companies is always a struggle, and we knew it would take some years to align payment terms and contracts, to integrate systems and to merge departments,” says Japp.
“We started with totally decentralised accounting and finance functions in each business unit. It was only in 2011 that we formed our shared services centre and centralised payments, by which point we were in a position to look ahead at how we could optimise our transactions and payments.”
Heidemann adds: “For our part, in the treasury, we knew that establishing a single group treasury was an important first step in 2006, but we were still dependent on local processes – such as payment terms – being aligned so that we could achieve our goals.”
DONG Energy embarked on an ambitious multi-year programme of activities to optimise its finance processes, with the vision of establishing an internal bank and payment factory and a completely centralised treasury.
This would involve a broad range of process and operational transformations, new IT systems – such as modules from SAP and a treasury management system from SunGard – and changes to its legal, banking and commercial relationships.
“While a lot of the work would be internal, we knew that our banking partners would play a key role,” says Japp. “We’ve been engaged in a very close dialogue with Nordea for some years.”
Nordea has been one of DONG Energy’s main banks since the merger in 2006, and the two companies have formed a close relationship.
“We have a lot of transactions so it’s essential that our systems work and that we get the right support when we need it,” says Japp. “That’s what we get from Nordea. We see it as a partnership, not just a supplier-customer relationship.”
|“It’s essential that we get the right support when we need it. We see Nordea as a partner, not just a supplier-customer relationship” – Kim Japp|
The value of this partnership was revealed in two recent projects:
Global Cash Pool: increased visibility of liquidity across the group
DONG Energy’s treasury needed better visibility of credit facilities and liquidity across the group’s accounts in order to tighten credit lines and manage risk.
The treasury department instituted a new banking strategy at the time of the merger, finding the two best cash management banks among the group’s 13 banks, one of which was Nordea.
But that was not enough to tame the complexity: the nature of DONG Energy’s business means that each new energy project – for instance, a wind-farm development – involves creating a new joint venture or legal company with new bank accounts and company codes that need managing.
Nordea had worked with DONG Energy in the cash management area for some years, and understood the intricacies of its operations. In fact, Nordea already provided some notional cash pooling, which gave DONG Energy the ability to manage liquidity across multiple accounts.
Nordea proposed its new Global Cash Pool solution, which promised even greater visibility across countries, currencies and accounts.
Implementing a cash pooling solution is always a complex project. Nordea worked closely with DONG Energy to define the rollout phases, with the first step being taken across Denmark, Norway and Sweden in January 2012.
DONG Energy and Nordea legal teams set about analysing the account structure and legal agreements. The solution went live in November 2012, with the company’s numerous UK accounts added to the pool in October 2013.
During 2014, Nordea also extended DONG Energy’s cash pooling solution to handle internal balance transfers to support the company’s new internal bank model.
eGateway: simplifying payments
In the wake of setting up a shared services centre, and with ambitions for instituting an internal bank and payment factory, DONG Energy had a pressing need to revisit its payment processes.
It was looking for a solution that would enable payments to and from all subsidiaries to be centrally approved directly within its SAP system, as this would mean greater efficiency, and would provide the treasury department with enhanced liquidity management. Nordea proposed migrating to its eGateway solution.
The project began in December 2013 with the development of file exchange formats and processes, and the testing of payments in Denmark, Norway, Sweden and the UK.
With DONG Energy’s complex business structure, which includes many companies and joint ventures that require specific payment processes and handling, there were some challenges to overcome. Furthermore, the project had a series of ambitious milestones and deadlines that needed to be met.
Nordea recognised the importance of the task and assigned a project organisation with a dedicated manager to keep stakeholders informed and solve problems.
“We didn’t just contact a service desk,” says Heidemann. “That helped a lot. Of course, there were hiccups, but what was important was that everyone collaborated and focused on solving them quickly.”
|“The collaboration with Nordea is saving us money as well as reducing operational risk. It’s hard to overstate the value that delivers to the business” – Kim Japp|
The new payment platform was live by the end of September 2014, and the cash pooling solution has gone from strength to strength. These solutions are fully integrated into DONG Energy’s SAP and treasury management solution, and into its shared services and treasury processes.
“These have been two major projects,” says Japp. “And the implementation has been a complete success. Now DONG Energy has truly updated, modernised and enhanced its core finance processes, producing tangible results.”
In the shared services centre, Japp reports a noticeable impact on payment effectiveness in terms of on-time payments, reduced errors, improved quality and cost savings. From the viewpoint of the treasury, Heidemann says that the cash pooling solution has not only reduced idle cash but produced daily savings in time spent on cash management.
|Anne Heidemann and Kim Japp|
Heidemann and Japp have clear recommendations for other businesses going through the same journey.
“You need a really solid test phase,” cautions Japp. “When it comes to payments, even small problems can have a big impact, and you can’t just pause finance processes after things go live.”
Heidemann notes the importance of communications, adding: “Keep the stakeholders informed in advance – otherwise when you make changes to their processes and systems, you’ll get a lot of time-consuming questions to answer.”
No fundamental business change is easy, but the results are often worth the complex transition phase.
“The collaboration between DONG Energy and Nordea has produced real benefits in cash management,” says Japp. “We have much more solid payment processes, and that’s saving us money as well as reducing operational risk. It’s hard to overstate the value that delivers to the business.”