Corporate Finance

Interview - Jean-François Deiss We chat to Rexel's VP Finance & Treasury about the company's treasury department, discussing everything from cash management reporting to receivables securitisation.

Interview - Jean-François Deiss, VP Finance & Treasury, Credit Management & Insurance, Rexel

Jean-Francois Deiss

From solely bank-based financing to market financing

Can you give us some of Rexel’s key facts and figures?

Our company, with a headcount of 31,000 in thirty-seven countries and 2,000 outlets, is one of the global leaders in distribution of low and very low voltage electrical material; we are number one in North America and in Asia-Pacific and number two in Europe. In 2012, we had a turnover of 13.4bn euros, 56% of which was in Europe, 32% in North America with a net cash-flow of 627m euros. Our shares, listed on the Euronext Paris stock exchange in the A section (blue chips), are eligible for forward settlement. Our market capitalisation amounts to roughly 4.7bn euros.

How is the architecture of your Treasury department organised?

Because of the nature of our activity, the Group is operationally quite decentralised. We thus have to pay special attention to finding the correct balance between operations, which means we must have a certain leeway in local management whilst centralising risks of all types that a company of this size faces. In this capacity, finance, treasury management and their associated risks are a part of the centralised regalian domains at corporate level.

So how does that impact the field of cash management reporting?

We had to map our local resources, so that we could decide whether or not to maintain a specific treasury function, such as those we possess in Germany or in United Kingdom, without of course forgetting the United States, Canada or Australia, for example. Furthermore, we had to draw up clear and precise written procedures for our cash management. This is tedious and time-consuming to implement, but in the long term gives us much greater fluidity in operations as well as enhancing controls. This process is generally composed of a cash pool in each country, which is headed by a cash pool overlay that Mendes Gans Bank manages. This allowed us to eliminate quite a few cash pockets over the past few years through close communication with local financial officers. The dialogue was facilitated by the fact that the Group always complies with the principle of strictly disassociating compensation from local financial results.

What about means of payment?

The central treasury does not work directly in this field; above all, its role consists in identifying and then propagating best practices with the goal of making the payment chain safer and more seamless.

What are the main risks and how do you mitigate them?

The traditional exchange rate risk is low, as most of our subsidiaries trade in local currency. When a risk exists, we help the concerned subsidiaries identify it, quantify it, and we carry out the corresponding market operations. We hedge our FX balance sheet exposure, albeit not systematically and depending on market conditions. For the interest rate risk on our 2.6bn net debt, we hedge on a rolling three-year horizon with the following weighting coefficients: 80% for the first twelve months, and then respectively 50% and 25%. These vanilla product based operations are given to one of the thirteen banks in our financial operations pool. Lastly, we investigate ways to take positive action for the Group in its indirect exposure to the variations in copper commodity prices, the main component that goes into cables and which is a significant part of our activity.

What recent changes have there been in your financing policy?

In just a few years we have gone from solely bank-based financing to capital market financing. This is not the optimal solution from a strict point of view of resource costs, but it presents three key advantages: longer maturity dates, much more leeway in management and strategy and a large pool of investors whom we would be able to contact in critical times. We took this curve back in 2009: we were rated by the three main rating agencies - these rates have regularly been reassessed since that time, and we reached BB for Fitch and Standard & Poor’s and Ba2 for Moody’s - and at the end of that year we proceeded with our first bond issue. In 2012, we issued 500m dollars’ worth of bonds with a seven year maturity date, at 6.125%, in the United States, where the Group has nearly a third of its sales. Our latest transaction took place in March, 2013: 500m dollars at 7 years for qualified investors in the United States and 500m euros at 7 years for institutional investors outside of the United States in order to redeem an old issue, thus saving a bit more than 300 base points. This was one of the very few operations with two rates where the euro rate - 5.125% - was less than that of the dollar - 5.25%. At the same time we renegotiated a syndicated loan of 1.1bn euros, mainly earmarked to serve as a liquidity buffer and finance working capital requirements. We also issue commercial paper for 150 to 200m euros per year, with margins hovering between 30 and 50 basis points.

Have you other financing sources?

Receivables securitization has been a key element in our financial strategy for the past ten years or so. This represents a total of roughly a billion euros, ensuring funding whose cost, at about 100 basis points, far less costly than factoring. This process is well adapted to a company like ours, where credit management comes naturally.

Are you in charge of credit management?

My responsibilities do indeed include credit management, as one of my responsibilities in the central treasury division is to impact best practices inside the Group, as well as our insurance needs.

Can you give us the key stages in your professional development?

My higher education started at ESC Reims [now Reims Management School], and then a few years later I did an MBA at Wharton Business School, in the University of Pennsylvania in the States. After that I started working in banking: market activities at the Industrial Bank of Japan. My key milestones are Usinor, where I was in charge of the front office, Imerys, where I was the Assistant Treasury Manager, CMA CCM, where I was the head of financing, and now I’ve been with Rexel since September, 2009.

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