Published: January 01, 2011
I work as Treasury Manager for VION Food Group. VION Food Group, headquartered in Eindhoven (the Netherlands), is a global food company that produces high quality foodstuffs and ingredients for people and animals. We specialise in fresh meat, processed meat, frozen vegetables and vegetarian products, as well as ready-to-cook meals and convenience food. We also produce the best possible ingredients for the food and pharmaceutical markets. VION Food Group employs over 27,000 staff worldwide and its annual turnover is € 9.0bn. This has made VION one of the leading companies in the Netherlands and a major global food company. Its head office provides support to its operating divisions. Together with the management of the various branches, the head office develops the corporate strategy and creates the preconditions to enable all branches to generate optimum business returns. As part of my role, I am responsible for cash management for the company.
I am from Royal Cosun, one of the largest agricultural cooperatives in the Netherlands. It is owned by some 10,000 sugar beet farmers in the Netherlands, and has a turnover of a little less than €2bn. The business comprises three parts: Suiker Unie, which is the sole producer of sugar in the Netherlands with a total European market share of around 8%; secondly, Aviko potato products, including French fries and speciality potato products. The third part is more varied, involving natural food ingredients. Our treasury is quite small, with two and a half FTE. My primary role is running a full service front office, which includes cash management.
My name is Johan Claudot, and I work for RTL Group in Luxembourg. RTL Group is the leading European entertainment network, with interests in 39 television channels and 32 radio stations in 10 countries and content production throughout the world. The television portfolio of Europe’s largest broadcaster includes, for example, RTL Television in Germany, M6 in France, and the RTL channels in the Netherlands, Belgium, Luxembourg, Croatia and Hungary. RTL Group’s flagship radio station is RTL in France, and it also owns or has interests in other stations in France, Germany, Belgium, the Netherlands, Spain and Luxembourg. RTL Group’s content production arm, FremantleMedia, is one of the largest international producers outside the US. Each year, it produces 9,500 hours of programming across 57 countries. In the treasury team we have eight people; I have recently been in charge of implementing SWIFT connectivity for the group, and also new bank relationships and cash management structures in various countries.
The first priority now is credit: know your partner, know what you do, understand the product that is being sold and what you are investing in.
I joined BNP Paribas in October, to roll out BNP Paribas growth strategy in the Dutch wholesale market. Although BNP Paribas acquired a large international network with Fortis Belgium, the Netherlands business was separated and is now merged with ABN AMRO. It is a priority for BNP Paribas to extend its network in the Netherlands to satisfy our clients’ pan-European and global requirements and provide greater choice to Dutch mid- and large-sized corporations.
I am the head of cash management for BNP Paribas in the Netherlands. If you look at cash management within BNP Paribas, then the Netherlands is one of the biggest cash management hubs outside our domestic markets, as the country is an attractive place to locate your cash pools. We have extraordinary products such as notional cash pooling, which is strongly related to the Netherlands. Our objective is to become a quasi-domestic player in the Netherlands, so not only will we continue to develop our international products but also local cash management products that are competitive with existing domestic retail banks.
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We all know that the last two or three years have seen very dramatic changes, both from a macroeconomic point of view, but also, within individual organisations such as BNP Paribas, particularly the acquisition of Fortis. Every company, bank and corporate alike, has had to face change, but what have these changes really meant, and how have you responded?
Firstly, we are becoming more cautious about banking relationships – not that we were not cautious in the past, but issues such as yield on deposits is now less important than it was in the past. The first priority now is credit: know your partner, know what you do, understand the product that is being sold and what you are investing in. In the past, as a cash-rich company, we would be introduced to new products by our bankers, and make the decision of whether to invest based on the yield first, and risk second. This situation is now reversed.
With regards to cash management, it is important that banks are honest about what they can and cannot do.
Secondly, you need to have the full picture of your bank relationship, which requires full transparency from your bankers. We saw during the crisis that you need to rely on your partners and on the information they provide. We saw who the good bankers were, and consequently, we have concentrated more business with those banks and stopped working with others. However, we do not work with only one bank: it is important to have multiple partners to reflect our global requirements. The quality of the relationship with these banks is very important, not just for individual deals, but in the long term.
How do you work with multiple banks whilst rationalising your banking business from a cash management perspective? Is the aim to have one bank for cash management purposes, or do you want to spread out this business?
At the moment we have decided not to go with only one bank, because cash management is a broad subject. In terms of cash pooling, we try to focus on one or two banks. For deposits or borrowing facilities, we have to deal with several partners, in order to gain access to enough borrowing lines.
Going back to the point you made about risk: of course, risk has always been important, but in the past, the emphasis has already been on the bank’s risk with their corporate customers. What is really new is that corporate treasurers are asking, ‘What is the counterparty risk of my banking relationships?’ This applies to financing but also cash management structures. For example, a bank can withdraw from a particular country, if they feel the risk is too high or the business less profitable than they would like, but this presents a major risk for their corporate customers. I agree that corporates should not rely on just one relationship, regardless of financing or cash management, although not too many.
In the past, I was always surprised that a corporate would have a bank syndicate that provided a standby facility, often for a large commitment fee, but the counterparty risk was never taken into account. Since the credit crisis, corporate treasurers are far more likely to consider this, so the rating of a bank becomes more important.
The LMA documentation now also incorporates the counterparty risk to our banks, which was not included in the past. [[[PAGE]]]
Amongst our clients, we see that a company that used to have 20 banks for financing, for instance, would now reduce this to a limited number of banks with a diverse profile, so that they can leverage the strengths of each bank. If a bank provides finance, they would expect to receive some ancillary business, and this way, each bank can deliver services according to its strengths.
This makes sense for our business too. If your banking group is too big, it is difficult to keep all banking partners satisfied and share the business fairly. In the past, we were in a situation where we had a relatively small group of banks. This group has now been extended and we try to find a healthy balance between participation in our group funding and sharing ancillary business. In the end we want to create a long-term partnership for mutual benefit. This is a clear message that we give to our banking partners.
With regards to cash management, it is important that banks are honest about what they can and cannot do. While there is a natural inclination to try to do everything, it is not in either party’s interests for a solution to cause disappointment. Bearing in mind that a corporate wants to divide its ancillary business fairly, according to each bank’s strengths, it is far better for a bank to be open about its strengths and the areas in which it may be better to seek an alternative.
Paul and Robert, you have heard how corporates have changed with regards to their bankers; obviously, as a bank, the way you work with your corporate customers has changed as well during the crisis.
Absolutely, and like our clients, we have had to adapt to the market. Lending requires capital, which is expensive, so we want to use it in the optimal manner, supporting clients with whom we can establish a long-standing, stable relationship, typically those that are internationally active who can therefore leverage our network. In addition, we want to help our clients find alternatives to bank financing, through supply chain financing, trade services and optimising cash management. We realise that we should not be in the market to do business with any corporate in the Dutch market, but those with which we can provide the greatest benefit, which of course benefits us too.
I like the point that Marc made, that banks should be honest about what they can and cannot do. You should deliver what you promise. To do this requires an open relationship with transparency on both sides, so that banks are devising solutions based on the right information.
That’s true, openness and transparency are the basis for the relationship. For a multinational company, it is important to find the right bank for the right product and/or service. We have identified our short- and long-term banking needs and believe that we can match our core bank relationships with these. [[[PAGE]]]
I think that is exactly our strategy. Transaction banking is at the core of our client relationships, as while provision of credit is important, it is often a one-off event, while cash management requires a long-term relationship with day-to-day contact. From there, other services can then be extended, such as supply chain financing and trade services.
As cash management involves largely straightforward processes, corporate treasurers and cash managers do not want to be troubled with the basics, so a bank has to be reliable and deliver these services accurately in order to maintain trust, and to resolve issues quickly when they inevitably occur.
Absolutely, therefore we strive to be amongst the top banks in terms of performance. When an error does occur, it is important to react quickly. Consequently, it is important to our clients that BNP Paribas is making an ongoing investment not only in its front-line people, but also the customer support, middle- and back-office functions that process client transactions.
It is also easy to equate all banks simply because they all deliver cash management services to some extent; however, there are often considerable differences between them, such as geographic coverage and support of domestic as well as international cash management needs. Corporates need to strike a balance in how they select their banks, taking into account credit quality, geographic reach, processing capability, customer service, and long-term commitment to the relationship, as well as products and services.
If a bank proves itself to be a good cash management bank, clients are very likely to consider it for other projects, such as deposits, M&A or whatever. Even at an operational level, if it is working well, the image you project to clients is good. On the other hand, if there is a disconnect between people and processes, and clients have to explain issues repeatedly, the impression is less positive and the client is less likely to consider the bank for other projects, even if these are unrelated to cash management.
The economic crisis, the banking crisis, and also our specific situation have triggered a greater focus on both cash management and working capital.
The way we try and address that here is to have very short communication lines. In Amsterdam, for example, everything is located in the same building, so the right people to resolve an issue can be engaged quickly. One other question I had is whether you as treasurers have changed your approach to treasury and its priorities? For example, we are seeing more of a focus on working capital management in a broad sense. Five years ago, obtaining a credit facility was quite easy and not too expensive, so it was not necessary to look at the capital that is locked into your organisation. Nowadays, we see that many companies have prioritised not only cash management but also supply chain financing and the cash conversion process. Is this also something that you see within your organisations?
Yes, definitely. For us specifically, I think it is partly triggered by the change in environment. Although as a food company, we are less cyclical than other industries, we are of course affected by the banking crisis. We have been through a number of acquisitions over the past years, and our banking infrastructure was expanding very quickly. We therefore also had to structure it to make it efficient from a cash management perspective, and allow us to realise synergies in treasury.Treasury can play a part by making the banking structure more efficient, cost effective and ultimately add value to the company, especially in a high volume, low margin business such as ours. So yes, the economic crisis, the banking crisis, and also our specific situation have triggered a greater focus on both cash management and working capital. For us, effective cash management and working capital processes create material additional headroom and unlock funds within the financial supply chain.
A recurring issue we have is with our subsidiaries, but this is normal due to our decentralised culture. While each group company is often important within its own country, we need them to understand the group cash management perspective as well. It is the role of the treasurer to give advice to subsidiaries, and to explain why certain cash management decisions are advantageous from a group perspective, even if the outcome at a local level is lower yields.
Our business at Royal Cosun is fairly recessionproof too. We have had a liquidity forecasting tool for some years, but the crisis and the focus on risk and liquidity has encouraged us to develop this further, and we have now incorporated it into the management reporting. I think that treasurers have always known that these tools are important, but you have to have the right environment in which it can be completely developed and implemented. This is, if you like, a positive benefit of the crisis. [[[PAGE]]]
The solution needs to work efficiently at a local level, with support from the bank’s local personnel.
Going back to the point that Johan made, is it important to have a bank that is present in the countries where you have subsidiaries so you can get buy-in into the company strategy at a local level?
Yes, undoubtedly. We are in a process of setting up a central framework to which subsidiary companies, both large and small, will need to adhere. This means that the bank has to cope with the major cash management needs of a larger subsidiary but also those of smaller ones, where the day-to-day operational requirements may be a little different. Our strategy is to incorporate as much of our cash management requirements into this framework, unless it is not economical or effective to do so. The open relationship with the bank is really important in achieving this.
We centralised our bank relationship, but we also needed to ‘sell’ the decision internally. Treasury is the primary contact point for the bank, and also the main contact with local treasurers and CFOs. It is important to explain why you are doing things, in order to get them involved in the process, to keep them involved and to understand their needs. Otherwise, a year later, things fragment and local subsidiaries look for an alternative solution of their own.
I think the value that the board places on liquidity and control over cash has also changed somewhat with the crisis. This is a good thing, and it makes it easier to justify establishing a global structure in the interests of the group, even if this is not necessarily best for an individual group company.
Based on your experiences, what do you need to be successful in encouraging and motivating your subsidiary companies to buy into the group view?
Over the past year, we have learnt lessons through improving the internal payments process and implementing SWIFT. It has been very positive to be able to demonstrate to local CFOs the benefit of an enhanced payment process that guarantees the security of the payment, and complies with internal audit and external regulations. When treasury can bring value to the subsidiary, in addition to establishing group policies and partner banks, the relationship is strengthened. A project such as SWIFT connectivity benefits significantly from the involvement of the local team, so it is important to maintain good links.
Absolutely, and a bank can certainly assist with this. Firstly, the implementation not only at a central treasury, but also a subsidiary level needs to be professional, with clear guidance from the global relationship manager to ensure effective communication of group and local requirements. Subsidiary companies need to be satisfied with the solution, so it needs to work efficiently at a local level, with support from the bank’s local personnel.
The challenge is that there are many people involved, and it takes time to keep the local entities involved to the extent that you desire. There are different stages in convincing the organisation. The first is to create a business plan and take it to the board to gain commitment at that level. Secondly, you have to convince the most important stakeholders, and to have a successful rollout, you also need to inform everybody who has contact with the bank. It is important to listen to what their (local) requirements are, as success will ultimately depend on meeting these. Their issues are typically not to do with whether a bank is the best on a Europe-wide basis, but they need to know where they can deposit cash and perform their day-to-day functions. These might not always be fully visible on a central treasury level, but they are highly relevant at a local level, so it is vital to have solutions to these. This is where the corporate and bank relationship is so important, to find solutions together, and address both central and local needs. Using this approach, local businesses are likely to be more involved and more satisfied with the final outcome. [[[PAGE]]]
There are also added complexities if, for example, central treasury is functioning as an inhouse bank, so subsidiaries are financed through treasury, which brings certain obligations. One of these, for example, is the need for accurate, timely liquidity forecasting; another is work within the banking structures.The first few months of a new cash management structure are the most important. It is better to postpone the live date and have a smooth start, than to keep to a live date regardless of whether the subsidiaries will be happy.
We had a project in which we changed our cash management processes, and switched banks to BNP Paribas, including having to advise all our clients of our new collection account. We had to set everything up within a very limited time, so it was essential to work with a bank that was efficient and could co-ordinate everything, such as communication,IT, and resolving issues.
The success of partnerships is really important to us as treasurers, and to set up that kind of project successfully also opens partnerships for and with our subsidiaries. Once we have achieved success in one part of the company, we can then rely on this experience to sell the concept more easily to another.
We have covered a lot in terms of how corporate-to-bank relationships have changed since the crisis, and the growing priority of cash management. Another issue that is clearly important is how to roll out banking relationships and cash management structures group-wide. To be successful not only requires addressing challenges, but in addition, the right banking partner – I think the expression Martijn used was ‘a good banker’ – can make all the difference. They can help you to sell the right approach to implementation internally, and support efficient, accurate cash management processes. People rarely remember all the good things that their bank does, they only remember the things that go wrong, so a partnership that recognises that is obviously very important.
From a BNP Paribas perspective, corporates’ increasing focus on cash management and working capital is closely aligned with our strategy. We are focused on being the European bank of choice wherever in the world a client is located. In the Netherlands, we aim to maintain close proximity to our clients, demonstrated through the opening of several business centres, which is just the start. For me, cash management is a core building block to a stable client relationship, working closely with them to devise the right cash management solution according to the company’s needs and aspirations.
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