Cash & Liquidity Management
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A Long-Term Approach to Core Banking Relationships: Appointing a UK Cash Management Bank

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.