Cash & Liquidity Management

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Optimising Cash and Liquidity to Reduce Financing Costs In 2011, GlaxoSmithKline's Group Treasury embarked on a cash and treasury optimisation project with very specific cost, risk and efficiency objectives. Initially, the project is focused on Europe but will ultimately be rolled out globally.

Optimising Cash and Liquidity to Reduce Financing Costs

by Sarah-Jane Chilver-Stainer, Senior Vice President and Group Treasurer, GlaxoSmithKline plc

GlaxoSmithKline (GSK) is one of the most respected corporations globally, combining innovation and excellence in pharmaceuticals, vaccines and consumer brands to improve the quality of life for people in every country. An essential way in which GSK is able to maximise its investment in research and development and continue pursuing its aim to eliminate malaria, is to be able to channel surplus cash from around the world to the parts of the group where it is needed the most, driving down the costs to end consumers by reducing the cost and overall levels of borrowing. In 2011, Group Treasury embarked on a cash and treasury optimisation project with very specific cost, risk and efficiency objectives. Initially, the project is focused on Europe, but this will ultimately be rolled out globally.

Treasury organisation

At GSK, we have a dynamic approach to cash and treasury management, and flex our business organisation according to the changing needs of the business. In the past, we had two treasury centres in London and Philadelphia. Since the appointment of a new CEO, and more recently CFO in April 2011, there has been a strong organisational focus on expanding the scope of treasury to centralise skills into a single centre of excellence, and optimising cash and risk management. We have now centralised our treasury activities in London, with five key areas of expertise: corporate finance; group treasury; cash management; pensions; and insurance.

A new approach to cash management

Over the past few years, we have adopted a policy of one bank relationship per country, in order to avoid the proliferation of accounts and fragmented liquidity that often results from mergers and acquisitions. We had cash consolidation structures in place to provide treasury with visibility and daily control over liquidity in the UK, USA, Canada and Puerto Rico; however, we did not have physical or notional pooling arrangements in place in other regions and we relied on local management transferring cash to Treasury at the end of each day. Taking a more strategic approach to cash and liquidity management had been a treasury ambition for some years, but it was not until we had a change in senior management that there was sufficient motivation across the business to implement a more regional and ultimately global approach to cash management. Since this time, the project has developed significant momentum and progressed rapidly.

We identified a series of key objectives:

  • Optimise the return on cash by consolidating balances across GSK on a daily basis;
  • Reduce costs by minimising local overdraft fees;
  • Create economies of scale by negotiating bank charges at a regional level rather than by country;
  • Standardise bank connectivity for exchanging payment and statement information and replace in-country electronic banking systems;
  • Implement an ‘in-house bank’, to deliver the automation of cash and FX management processes, as part of a new ERP platform at GSK.

Based on the objectives we had identified, we received approval to appoint a specific project team that would enable us to implement our cash optimisation project more quickly without impacting on day-to-day operations. We decided to implement the project region by region, starting with Europe, building on the visibility and control of cash that we had already achieved in the UK.

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