Cash & Liquidity Management

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Rapid Response to Achieving Cash Management Objectives At the start of 2011, Merck embarked on a project to rationalise its banking partners and streamline its cash management activities. Despite ambitious targets and an aggressive timeline, Merck's treasury has achieved impressive results within nine months of embarking on the initial planning stages.

Rapid Response to Achieving Cash Management Objectives

by Jörg B. Bermüller, Head of Cash and Risk Management, Merck KGaA, and Jörg Konrath, Global Cash Management Relationship Manager, BNP Paribas

At the start of 2011, Merck embarked on a project to rationalise its banking partners and streamline its cash management activities. Despite ambitious targets and an aggressive timeline, Merck’s treasury has achieved impressive results within nine months of embarking on the initial planning stages. This article, based on Jörg Bermüller’s presentation at BNP Paribas’ Cash Management University 2011, outlines how this was realised.

Treasury structure

Merck Financial Services GmbH, which is managed by Merck’s Group Treasury, acts as an in-house bank on behalf of all 242 of the group’s legal entities in 69 countries. In treasury, we process 650,000 external payments each year with a value of €71.5bn. We manage 1,180 intercompany accounts in 33 currencies, and over half a million internal invoices. From an external cash management perspective, we operate 16 cash pools in 14 currencies, which include 150 legal entities in 35 countries.

Our Cash Management function for the in-house bank comprises only 10 professionals, so in order to manage our complex, high-volume cash and risk management activities effectively, our sophisticated technology infrastructure based on SunGard’s AvantGard Quantum is crucial. This is integrated with Siemens’ payment tool finavigate® as well as our banks’ cash management systems for backup purposes. We also integrate Quantum with 360T for online trading, Misys for confirmation matching and our ERP environment for accounting and group reporting.

Project objectives

Merck has embarked on a number of strategic mergers, acquisitions and partnerships in recent years, including acquiring Serono shares in 2006 and the purchase of Millipore in 2010. Today, the Merck Group is a chemical and pharmaceutical company based in Darmstadt, organised in four divisions: Merck Serono, Consumer Health Care, Merck Millipore and Performance Materials, which together employ more than 40,000 people. As a result of these mergers and acquisitions, we were left with a complex and fragmented cash and treasury management environment, with too many cash pools and disparate treasury processes, reducing efficiency from a cash and risk management, and operational perspective. Consequently, we launched a project to enhance cash management efficiency at Merck, not simply by putting in place an overlay or new cash pools, but by redesigning our banking and cash management strategy.

Four currencies: EUR; GBP; USD and CHF account for around 70% of our business, so we decided to focus on these currencies initially. Our objectives were as follows:

  • Reduce the total number of cash pools to increase cash management concentration and therefore our return on cash;
  • Rationalise our banking partners to create greater economies of scale, reduce costs, and require fewer resources to manage bank relationships;
  • Integrate accounts that had not previously been included in a cash pool to maximise liquidity and enable a more cohesive cash and risk management strategy;
  • Enhance operational processes, such as back-up solutions, to replace manual, ad-hoc techniques.

We wanted to implement zero-balancing cash pools for each currency, as opposed to notional and/or cross-currency solutions, so we could then manage each currency balance ourselves. Our aim was to appoint one banking partner per currency at a global level, with local payment capabilities as appropriate.

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