• cash management
  • cash pooling
  • centralisation

Getting a consolidated cash flow picture

by Ben Poole

Published: 2 October 2018

For Hoffmann-La Roche and L’Occitane, improved visibility is a positive side effect of cash consolidation. Ben Poole reports.

Generating cash in a number of countries and currencies can present a headache for treasury as they strive to get clear visibility over cash positions, according to presentations at the International Treasury Management conference in Geneva.

Stefan Windisch, Hoffmann La Roche

Stefan Windisch, senior cash manager – treasury operations at F. Hoffmann-La Roche, the multinational healthcare company, explained that more than a decade ago, cash management was very decentralised, there was no pooling, no transparency, and no push-the-button reporting.

“We started from scratch and the decision was made to go for full centralisation, with headquarters deciding our cash management banks, for example” Windisch noted. “We wanted to introduce cash pooling, established zero balancing, so that the in-house bank can see the full cash position and act accordingly.”

Now Windisch and team know at least a day in advance of when and where payments are going to happen, so they can ensure they have sufficient funds in the respective cash pool. On a daily basis they determine their cash balance for 30 currencies, the liquidity they need to confirm tomorrow’s payments, and what to do with excess cash if any.

Delegates in the session also heard from another treasurer at a European aluminium products company. They said that the results of consolidating bank account information has resulted in a three-month forecast for every relevant currency, and as a result treasury knows what cash it is expecting at the end of the day.

A key message was that when group entities are trained and appreciated how seriously their input can support treasury and the company as a whole, they will make the effort to effectively log where and when each payment goes. For companies that are not cash rich and don’t want to increase the cost of borrowing, this is a metric to track every day.

Samuel Antunes, L’Occitane

For L’Occitane, a global manufacturer and retailer of natural cosmetics and well-being products with revenue of €1.3 billion, being present in 90 countries created a major cash visibility challenge. To simplify the situation for treasury, the company opted to establish cash concentration in each of its operating currencies. Once cash concentration had been achieved followed by global multi-currency cash pooling into a single header account.

Reducing the FX risk was one of the main goals of the project, as Samuel Antunes, director of group cash management and financing explained. “We are a global company with book in euro, which obviously has an impact on sales and profit. Our main exposures are to the yen, dollar, ruble, yuan and pound”.

By implementing a treasury management system (TMS), treasury’s goal was to find a tool that could easily be developed worldwide with subsidiaries. “Today we have 90% of our subsidiaries connected to the TMS, which is vital to give us the visibility over cash we need”.

In its global banking relationships, L’Occitane has a general rule to work with investment grade banks. Today, Antunes says that 97% of their banking partners fit this definition. “The remaining 3% are in locations where those level of banks don’t exist, so we have to use them”.

The company’s goal is to have a cash concentration level of 90%, and today they are between 85-90%. Antunes advises using cash concentration as a means to an end, not an end in itself. He encouraged treasurers that may be investigating the potential to implement a cash concentration structure to focus on global goals such as P&L and see if there is an interest.