Published: August 16, 2010
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.
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.
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.
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.
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. [[[PAGE]]]
We are currently in the final stages of implementation with SEB in the UK and the solution is proving very satisfactory. As business units had to change bank accounts from their legacy bank to SEB, it was a major undertaking, so we divided the project into phases. We have now completed the first two stages, and phase three is currently in progress. Throughout the implementation, our decision to select SEB as our UK partner bank has been validated, and we have a very good relationship with the SEB team. We have found that SEB has maintained an excellent relationship with the UK finance team and shared service centre (SSC), including spending time with them, whilst also communicating regularly with Group Treasury, including weekly conference calls between SEB, Group Treasury and the UK finance teams, and participation on the project steering committee.
We have found that SEB and some other partner banks have proved their commitment to a long-term relationship, and have taken the time to develop a detailed understanding of our industry and company.
One of the experiences we had had in the past, and we were keen not to repeat, was that banks demonstrate strong interest in the project at the start, but motivation lessens later on. This has not proved the case with SEB, as the team continues to be committed to achieving the full set of objectives within our project time scales.
Achieving cash management efficiency is a continuous process. In parallel with the UK project, we completed the implementation of a large cash pooling project in the US, including accounts for US entities and USD accounts for European entities. As for our next projects, we will need to restructure our cash management structures across our business in other countries, based on our core banking panel, as we have done in the UK and US. Looking ahead, we may consider the use of SWIFT for bank connectivity, primarily to improve liquidity information at Group Treasury level, by consolidating bank account information across the Group through SWIFT. We are at the early stages of this project currently, identifying the numerous bank accounts that would need to be included in the exercise.
Corporate treasurers and finance managers recognise that it is not ultimately beneficial to the company’s interests to take a short-term approach to banking relationships. Some banks that approach a company will inevitably be seeking a return from the relationship within the first six months, but we have found that SEB and some other partner banks have proved their commitment to a long-term relationship, and have taken the time to develop a detailed understanding of our industry and company. In doing so, these banks can appreciate the dynamics of our business and therefore have the confidence to support us during good times and bad, so we can mutually contribute to each other’s success.
HeidelbergCement is the global market leader in aggregates and a prominent player in the fields of cement, concrete and other downstream activities, making it one of the world’s largest manufacturers of building materials. In 2009, Group turnover amounted to approximately €11bn. The core activities of HeidelbergCement include the production and distribution of cement and aggregates, the two essential raw materials for concrete. We supplement our product range with downstream activities such as ready-mixed concrete, concrete products and concrete elements, as well as other related products and services. Around 53,000 employees in more than 2,500 locations make sure on a daily basis that our slogan ”for better building“ is brought to life.
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