Cash & Liquidity Management

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A Long-Term Approach to Core Banking Relationships: Appointing a UK Cash Management Bank Until 2006, HeidelbergCement had a decentralised approach to treasury, with the Group Treasury function located in Malmo, Sweden. In 2006, the company made the decision to centralise, and relocated its Group Treasury to corporate headquarters in Heidelberg, Germany. David Flory explains why this decision was made, the challenges faced whilst approaching implementation, and why the factors for this move were reflective of a need for a long-term approach to banking relationships.

A Long-Term Approach to Core Banking Relationships:

Appointing a UK Cash Management Bank

David Flory, Head of Group Cash Management, HeidelbergCement

Until 2006, HeidelbergCement had a decentralised approach to treasury, with the Group Treasury function located in Malmo, Sweden. In 2006, we made the decision to centralise, and relocated our Group Treasury to our corporate headquarters in Heidelberg, Germany. The department now comprises 15 people, across front office, back office and cash management. Treasury acts as an internal bank to the Group, providing the link between Group companies and our core banks, and is responsible for Group financing, FX, cash management and investment requirements. During 2007 and 2009 respectively, Group Treasury also played a key role in financing the acquisition of Hanson Group, and refinancing our debt.

The need for cash management integration

Achieving cash management efficiency using cash pool arrangements is not a new concept for HeidelbergCement. We have used cash pools for over 10 years in our key countries of operation. However, the acquisition of Hanson Group resulted in multiple cash pools in each country, mostly with different banks, so we needed to rationalise our cash management structures and relationship banks. We took a pragmatic approach, starting with our key countries such as the UK and US. While HeidelbergCement had been present in these countries before the acquisition, these were Hanson Group’s key operating locations. For example, Hanson Group had two cash pools in the UK, and HeidelbergCement also had one, which together required a great deal of resource to manage, particularly as these were held with different banks and in the name of different entities.

Core banking principles

The concept of core banking is important to HeidelbergCement. We have a number of banking partners that have supported the Group for many years, including engaging in financing and refinancing exercises. In recognition of their ongoing contribution to the success of the business, it was important for us to concentrate our ancillary business with these core banks wherever possible. When we restructured our syndicated facility in the second quarter of 2010, we reduced our relationships from 61 to 17 banks, which together comprise our core banking panel.

Selecting a domestic banking partner

Although HeidelbergCement operates in over 40 countries, our business in each country is almost entirely domestic, as it is not practically or economically viable to transport cement or concrete long distances by road. Consequently, we have local sales and production sites close to our customers, and typically therefore, work with a domestic bank with a strong branch network. When rationalising our bank relationships, we considered those of our core banks with a strong presence in the relevant country. When we reviewed our UK banking structure, we invited three of our core banks that met these criteria which included SEB as a candidate, as we already had cash pools with the bank that had been very successful.

When we restructured our syndicated facility we reduced our relationships from 61 to 17 banks, which together comprise our core banking panel.

Initially it was difficult to see how SEB could meet our local banking requirements in the UK as the bank only had a London presence. However, we recognised that SEB has a strong partner bank relationship with a UK domestic bank which would provide the branch presence we required. We conducted a request for proposal process, and evaluated each response on issues such as: the quality and availability of day-to-day banking services; cash pool structure; internet banking capabilities and ability to integrate with our in-house systems. In this way, our aim was to consider each bank’s proposal on a holistic basis.

Appointing a UK cash management bank

Although it had not been our expectation that SEB would deliver the most compelling proposal, we found that their delivery capability and quality was the best overall of those we considered. We already had confidence and trust in SEB, having had a long relationship with the bank and our key contacts. Therefore, we knew that they would deliver on commitments made and they would continue to support the process throughout. One particular differentiator was SEB’s customer-focused team. SEB has a far smaller team than the major UK banks, but this allowed us to form strong relationships and achieve a tailor-made solution that was specific to our needs, which included the level of systems integration that we were seeking. We found that this level of flexibility was less apparent amongst other banks which were to some extent more inclined to sell standard products.

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