Elevion Group Powers Ahead

With Liquidity Efficiencies Through Multinational Cash Pooling

Having identified cash management inefficiencies across its various group entities, Elevion Group’s treasury team set out to dramatically improve performance by implementing a multinational cash pool.

European MNC Elevion Group focuses on end-to-end decarbonisation projects and complex energy efficiency solutions. It is a member of the ČEZ Group, one of Europe’s largest utility companies. It currently consists of three business units: building energy solutions, green energy, and energy for industry. Founded in 2017, the business broke through the €1bn revenue milestone in 2023.

The company operates in 12 European and Asian countries, with its most prominent presence in Germany, the Netherlands, Austria, Italy, Poland, Romania, and Hungary. Overall, the Group comprises more than 70 highly specialised and independent companies.

Its treasury team identified that the scale and scope of the company’s operations were causing cash management issues that prevented it from hitting peak performance.

Company CFO Jiri Pecka explains: “Prior to implementing the cash pool, each group entity used its historic local bank, and financing was carried out through intercompany loans from the ČEZ  Group. This led to cash management inefficiencies, where one Elevion Group company could have a significant cash surplus, while another could have a major financing shortfall.”

To overcome that type of inefficiency, it was necessary to implement a comprehensive system that would allow for a more effective liquidity and capital management process, one that could reduce interest costs and bank fees.

“In 2021, we decided to establish a comprehensive system for managing liquidity,” recalls Pecka. “We approached five international banks to design how they would implement an international multicurrency cash pooling structure, and then went through a selection process.”

‘We like digitisation’

In the bank selection process for the cash pool, Elevion sent RFPs to the five potential partners. While pricing was naturally a crucial element, treasury also sought a bank with a presence in all of Elevion’s required countries.

Zuzana Matečková, Treasury Manager, Elevion Group, reveals: “Electronic connectivity, such as EBICS [Electronic Banking Internet Communication Standard] or host-to-host, was vital, as were options for the liquidity concept.”

Once the banking partner had been selected, the new cash pool went live at the beginning of 2023 with a big-bang approach. More than 30 businesses’ accounts in six countries made up the initial cash pool structure, which has already grown significantly in scale.

“Today, we have 50 business accounts in eight countries, and Elevion Group operates a multilevel cash pooling mechanism,” Matečková explains. “At the top of the structure are three main header accounts, for the euro, Polish złoty and the Romanian new leu.”

All three header accounts were initially opened in the Netherlands. However, the złoty and new leu accounts were moved to the local bank branches because of the better interest rates.

On the pricing side, each account has its own debit and credit interest rate set in the banking platform. This is regularly updated by the central treasury team. The price includes market rates plus debit and credit margins. The margins are calculated in a relatively automated manner based on the financials of each participating company. This is carried out using an external online software tool for the calculation of arm’s-length interest rates.

Pecka highlights: “We use this tool because we like digitisation. The tool also automatically generates transfer pricing documentation to substantiate the arm’s-length principle, which generates further savings on tax advisory costs and is also helpful for IFRS disclosures.”

The connectivity between the bank and the cash pool participants was organised individually for each subsidiary. German companies used their own banking solutions and connected via EBICS.

Matečková elaborates: “This was implemented through co-operation between the bank and our German colleagues. For entities without EBICS, host-to-host connectivity has been established, meaning that the payment rounds and bank statements use XML files.”

Overcoming distrust, managing expectations

Implementing the cash pool has dramatically benefited the Elevion treasury team’s cash management efficiencies, as Matečková explains.

“Robust liquidity management is crucial in optimising balances on the header accounts. We have adopted a centralised approach with Elevion, participating in the ČEZ  Group cash pool structure using two business accounts, one for the euro and one for the Polish złoty.”

If there are excess cash balances, the idle funds are transferred from the headers to other business accounts in the ČEZ cash pool. Should there be a projected cash shortfall, the headers are funded from the business account.

“A unified cash forecast report was created for all entities,” adds Matečková. “Reports are prepared by the cash pool participants weekly and shared with headquarters. This is not yet a fully automated process, but we aim to achieve this as part of our treasury management system and ERP efforts.”

The greatest project challenge that the team faced came from the fact that the implementation process was managed by an extremely small central team.

Pecka emphasises: “We needed to be very efficient. What proved to be a key success factor in the implementation stage was proper communication to convince all relevant stakeholders about the benefits of the cash pool. This factor should not be underestimated.”

Given that the Elevion Group has many SMEs, highly motivated local management is necessary. However, this did prove to be a slight obstacle in the smooth implementation of the cash pooling initiative.

“Unfortunately, the practical experience of local executives with cash pooling was fairly limited, and the implementation process was viewed by some with certain distrust,” admits Pecka. “Its complexity was aggravated by the potential personal liability of local management from the entry of their respective entity into the cash pool.”

This challenge led to intricate intergroup negotiations, which spanned several months, regarding indemnities and the underlying legal documentation. Excessive internal expectations that everything would be perfect from day one caused a further pain point in the day-to-day operations of the post-implementation phase.

Faced with these issues, the team prioritised frequent escalations with their banking counterparts. As a result, the bank and the treasury team refined processes to meet both parties’ needs.

“We now have weekly calls with the bank, tracking the status of various service and implementation issues,” outlines Pecka. “As a result, I believe that the general perception of the cash pool will significantly improve within the Elevion Group entities.”

The significant benefits and synergies realised through the cash pool implementation should help with this perception. A vital achievement here is that the treasury’s consolidated cash position has been substantially optimised.

“In the past, the group had huge cash balances, as well as significant intercompany debts towards the ČEZ Group on the liability side,” reflects Pecka. “After implementation, both the cash balance and liability were substantially reduced, leading to interest savings for Elevion and the ČEZ  Group. We estimate these savings to be between €1m and €2m annually.”

Implementing the cash pool has unleashed additional positive factors, such as savings on tax advisory costs. “The total financial benefit of the cash flow implementation is estimated at up to €2.5m per annum,” Pecka adds.

One unintended benefit of the cash pool implementation is that it forced Elevion Group to refine its internal treasury processes and to harmonise them as much as possible across the various entities and countries. In addition, the complexity of the whole process and the challenges encountered throughout the project strengthened the team’s determination to work on further digitisation.

“Digitisation should be the ultimate goal of every finance organisation,” enthuses Pecka. “It has also boosted our motivation to take our treasury function to the next level.”

Embracing the challenges

The treasury team is firmly committed to automating treasury processes where appropriate.

Matečková emphasises: “Our vision is to eliminate manual tasks and the potential for human error as much as possible. Therefore, at the end of 2023, we kicked off the implementation of a TMS.”

In the initial phase of the implementation, the team will connect its bank accounts to the TMS to use only one tool to gain complete visibility over all group cash positions per currency and country.

“In the future, we would also like to focus on automating our cash forecasting by establishing connectivity to the local entity ERP systems, as well as the harmonising of payment runs,” Matečková adds. “We are also working on unifying the ERPs in our organisation. It is impossible to get bored in our company, and we love the challenges ahead of us.”

That positive attitude is essential in any treasury project, but particularly in an implementation as complex as a multinational cash pool. For treasurers embarking on a similar project, Matečková notes: “It is extremely hard work, but the rewards are worth it. You need to be patient and resilient.”

For Pecka, treasurers need to ensure proper communication with all project participants and display a positive attitude toward problem-solving.

“Treasury must align properly with all relevant stakeholders,” Pecka concludes. “Also, having a talented team that is used to working in an international environment is vital, as they will support you on your journey.”