At the recent EuroFinance conferences in Singapore and Miami, Katherine Wei, Director of Treasury, China, and Nishat Grover, Director of Treasury, US, both of Yum! Brands, Inc., discussed their roles in supporting the needs of a fast-growing global business through inspiring cash management strategies in the two countries. In part two of this two-part series, Wei explains how the company manages cash, talent and acquisitions in China.
US-listed company Yum! has operated in China for 20 years, building up a network of almost 6000 restaurants in more than 800 cities. On its website, Yum! says that it considers “China to be the greatest restaurant opportunity of the 21st century.”
And China certainly has been good to Yum!. At the end of last year Yum!’s Chinese operation made up 60% of the company’s total global revenue. It currently opens a new restaurant every 18 hours, which accounts for very large in-country capital expenditure. The average return on investment (ROI) for each unit is 30%. It is no wonder that its long-term growth plan includes a goal of opening at least 20,000 restaurants in China.
However, an ambitious growth strategy also throws up a number of challenges, especially operating as a cash-rich foreign-owned company in China. As Katherine Wei, Director of Treasury, China, explained: “In the early days, we had 20 legal entities with more than 200 bank accounts. This was because every time we opened a new site, we would find a nearby bank and open an account there. We couldn’t stick to this model – we needed to centralise.” Yum! treasury decided to work together with local banks because the network’s footprint is closely married to the local banking network.
Cash pooling was almost unheard of ten years ago in China, so Yum! had to clearly articulate its needs to manage the cash in a centralised fashion for greater efficiency and effectiveness. Its main Chinese banking partner also clarified its business considerations and how Yum! could help its developments. “Through open communication, we found out that we had a lot of commonality in terms of goals and opportunities, so we could work together,” said Wei. Yum! treasury was able to have input as to how the cash pool would work. Within five years Yum! set up a regional treasury centre (RTC), where it sweeps and pools its cash.
The cash pool structure deals with daily cash inflows, but Yum! also wanted to develop a streamlined model for its payments. Importantly, the company has a shared goal of disciplined growth, so treasury worked in partnership with its supply chain team and business development team to design a disciplined payment pattern: it pays for utilities at the beginning of the month, materials in the middle of the month and capital spending at the end of the month.
IT aligns with customer evolution
As a restaurant chain, Yum! is not focused high-tech solutions; however, it realised that its customers were embracing mobile payments (m-payments). So treasury partnered with the IT team to develop mobile solutions for its restaurants. “For example,” explains Wei, “customers wanted to be able to use mobiles to order food and pay for it in advance, so that when they walk into the restaurant they have already paid. They want to get the food immediately, which fits in with the KFC fast food concept. We are working with IT to achieve a mobile solution.”
Wei touched on how Yum! attracts and retains top talent in its finance department. “In a dynamic market, finding the right people and keeping them is very important,” she said. Yum! has two treasury teams, one in China and one in the US, working together to manage global cash (the China team now manages more than half of Yum!’s global cash).
According to Wei there is much cross-pollination between the two teams – Treasury China regularly invites Treasury US staff to do short-term projects, and vice versa, so that they learn the fundamental business. A high level of interaction is also promoted with the business units (BUs). “All treasury professionals in the company need to understand the BU business and the BU staff need to know the big financial picture, for example Yum!’s activity in the capital markets, how we handle external ratings agencies, etc,” she said.
Bundles of cash
Yum!’s treasury defines itself as a profit centre, and tried to manage its surplus cash in order to give more to its shareholders. It works with a number of international banks in order to diversify its assets and mitigate counterparty risk. “The international banks entering China are more eager to develop a creative model that meets the customer’s needs. We are working with them on many new initiatives for short-term investments, not just bank deposits but also money market funds (MMFs) and sovereign bonds. Beyond that, our international banks give us new ideas for dealing with structured deposits.” She said that Yum!’s first priority is safety, followed by liquidity and then yield.
In China, the company has a lot of surplus cash; while at the same time it is looking to take advantage of opportunities opening up in the emerging markets (EMs), such as India, Africa and Russia. Therefore, one of the goals for the finance team is to bring money out of China. The company is working with the People’s Bank of China (PBoC) on a cross-border cash movement structure, but Wei declined to comment on the details. However, she remarked: “We believe that the internationalisation of the renminbi (RMB) will bring many basic treasury management concepts to the company and that will present us with a number of new opportunities.”
Yum!’s aim is to be a Chinese company and the leading food brand in the country. In order to achieve these two goals, it acquired the Little Sheep Group, which operates hot pot restaurants primarily in China and is headquartered in Baotou, Inner Mongolia. In May 2011, Yum! acquired 93.2% of the issued share capital of the company, privatising it on the Hong Kong Stock Exchange (SEHK). The handover date was February 2012 and Yum! sent a “command” team to Mongolia in order to gain synergies through a shared service concept.
“This year the focus will be on system integration and bank consolidation,” says Wei. “After that we will bring together our supply chains. At our current stage, Yum! has two strong brands – KFC and Pizza Hut – but in the near future we will showcase the three brands together.”
This insight was first published on www.treasurytoday.com