Strategic Treasury

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Interview: Hugh Weston-Smith, Sphere We speak to the Financial Director at household packaging company Sphere about the group's capital structure, the importance of finance functions within the group and more.

Hugh Weston-Smith

Financial Director, Sphere

“We prefer subsidiaries to have as much responsibility as possible”

What are Sphere’s fields of work? How is the company structured?

A little more than 35 years after the company was founded by the Persenda family, it became the European leader in household packaging, with around 1,200 employees and a turnover of more than €350m. The products developed and manufactured by Sphere are retailed in large outlets under the name Alfapac or under own-brand – items such as bin bags, cling film, baking parchment, bags for sorting recycling, biodegradable bags, bags for public dustbins, sold to local authorities, to public service corporations and even to the health sector. The company, which originally focused on trade, expanded first into manufacturing, then, during a second phase involving numerous acquisitions, went on to expand geographically, notably to Germany, the Netherlands, the United Kingdom, Italy and Spain.

The group is composed of about 15 active companies, both industrial and commercial, half of which are based in France.

A new era began for the company in 2005, an era of bioplastics, with the acquisition of the Germany company Biotec, followed by our involvement in a starch production operation together with a farming co-operative; this is to ensure the future development of bioplastics through innovation using natural products –made from cane sugar or potatoes – with an emphasis on the fact that they are biodegradable, compostable or have low carbon footprint. The group is composed of about 15 active companies, both industrial and commercial, half of which are based in France.

What is the group’s capital structure?

The majority of capital belongs to the original family shareholder who wished to gradually offer shares in the company: this was the case in 2003, when Barclays Private Equity joined the investor round at the time of a capital increase, along with a system of drawdown on the current account overdraft at the holding company and an equity warrant issue. Barclays ceded its place to another private investor in 2010, without any significant modification to the capital structure. I must add that 50 or so executives are partners in the company.

What have been the repercussions, for you as financial director, of the arrival of an investment fund?

Economically speaking, the arrival of Barclays Private Equity [which has since become Equistone Partners] resulted in a provision of funds which meant we could boost external growth. The event was preceded by some groundwork, notably improving and standardising the reports and financial follow-ups of our subsidiaries, a task which was then continued in greater depth. Barclays’ departure and their replacement by another investor was a very specific task: writing up a vendor due diligence report, generating several exit scenarios, and refinancing the overdraft, which was done thanks to a club deal with three banks, the margins of which are dependent on the debt ratio. Since 2006 we have had the objective of bringing our practices and financial information into line with other listed companies and with IFRS standards; this condition is part of the group’s good practice principles today.

Can you tell us how important finance functions are for the group?

The group has about 40 people with finance roles, a dozen of whom are based at our headquarters, whose work covers financing, accounting and the treasury, consolidation and central management control.

Less than a third of the team are based at headquarters: does this mean that, when it comes to finances, the group is decentralised?

The group is proud of its origins and tries to preserve the values of a dynamic smaller business: despite its ever-increasing size, it considers itself a family of smaller businesses. We much prefer subsidiaries to have as much responsibility as possible, while looking after financial control and putting synergies in place. These subsidiaries have financial teams whose size depends on their activity; but, while it is important that they have substantial financial and operational independence and manage their own working capital requirements and banking relations, they must stick to strict and systematic reporting procedures.

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