Published: May 04, 2011
Efficient cash management has been a priority for privately-held specialist engineering firm Golder Associates (‘Golder’) for a number of years, and its European business, managed from Turin, Italy, had an established relationship with a major cash management bank for centralising cash. However, the bank was purchased during the global financial crisis, prompting Golder to select a new pan-European cash management bank and further enhance its European cash and liquidity management infrastructure, as Davide Raviola, European Chief Financial Officer, explains in this article.
As we were concerned about the future strategy of our cash management bank under its new ownership, we made the decision to select a new banking partner. We had an existing relationship with UniCredit, and were attracted to working with a bank that had remained stable throughout the crisis, and had a long-term commitment to supporting our business.
We had already achieved a significant degree of centralisation and automation of our cash management activities prior to our relationship with UniCredit. Previously, group companies across Europe had been managing cash and funding locally, resulting in a loss of visibility and control over cash and risk, and preventing surplus balances in some parts of the business being used to fund others. We had therefore implemented a centralised approach to cash management, pooling cash wherever possible and establishing an in-house bank to enable us to align funding needs and reduce costs.
By migrating our cash management business to UniCredit, we aimed to achieve the same benefits that we had realised with our previous bank, but also to simplify our cash management framework. In addition, we wanted to standardise our electronic banking on a single platform with common formats, in order to integrate data more easily with our internal systems.
We appointed UniCredit to pool cash across all Golder Group’s European entities located in Italy, Portugal, Spain, France, UK, Ireland, Germany, Hungary, Sweden, Finland, Norway, Denmark, Turkey and Russia. In the UK, we have opened accounts at UniCredit London Branch and established a local GBP cash pool. In Turkey, we have opened accounts with UniCredit-owned bank Yapi Kredi, UniCredit Bank AG (former HypoVereinsbank) in Germany and UniCredit Bank ZRT in Hungary. In countries where UniCredit does not have a direct presence, we have accounts with its partner banks through IBOS association agreements, such as Santander in Spain and Portugal, and HSBC in France, with a zero-balancing overlay structure with UniCredit.
Daily statements on all our European accounts are provided by UniCredit through its web-based electronic banking system using MT940 messages. These are then converted into the Italian CBI standard so they can be uploaded into our in-house treasury and cash management system. We are also using MT101 messages for transferring cash to/from accounts included in the cash pool.
In most countries, we zero balance cash into our header accounts, with a planned notional pooling in the remainder. In Turkey and Russia, where physical cash pooling is restricted by law, we access balance and transaction information through the electronic banking system. In addition, we are working with UniCredit to consider the feasibility of notional multicurrency pooling on a project base.[[[PAGE]]]
We were very fortunate that the transition process was relatively straightforward thanks to the support of a skilled, experienced team from UniCredit. The most considerable difficulty we encountered was engaging partner banks, some of which were more proactive in establishing a relationship than others; however, these issues were quickly resolved.
From a technology perspective, the move to UniCredit’s electronic banking has been a very positive experience. Our previous system had not been web-based, so there was more installation and maintenance required, and less flexibility for remote access. Now we have a system that is intuitive, easy to use and accessible. Seamless integration between this system and our in-house treasury system has also been a valuable element of our project. While we have yet to complete this part of the project fully, such as for intercompany balances, we have found it quite easy to export data from UniCredit’s system into different formats and systems. We use an in-house built system for cash and treasury management, and by integrating data more effectively, activities such as cash positioning, treasury accounting and supporting the in-house bank are more streamlined.
Since implementing our new, simplified cash pooling arrangements and technical infrastructure with UniCredit, we have achieved a high level of visibility and control over our cash and risk in more than 14 countries and over 50 accounts. As well as now having zero-balancing arrangements in place in six countries, with planned notional pooling for the future, we are considering target balancing in some jurisdictions such as Finland. We are also looking to extend our centralised cash management framework to Poland.
Notional pooling is uncommon in Italy due to regulatory constraints; however, as UniCredit is a pan-European group, with experience in building efficient, innovative solutions across Europe, we will be able to put in place a solution that satisfies local interest compensation and tax requirements, whilst achieving our internal cash management objectives. A further benefit of the solution with UniCredit has been the pricing of cash management services. We have agreed that these will be priced on a forfeit-based arrangement, leveraging a new UniCredit tool called ‘Pricing Manager’. This allows fees to be billed automatically at period end supported with a detailed invoice for full transparency and auditability of charges.
Migrating between banks successfully and without loss of functionality or automation is not always easy, but working with UniCredit has exceeded our expectations and delivered greater simplicity, automation and visibility than we had been accustomed to previously. We are therefore able to make better informed decisions and set policies that are appropriate to our business, creating a virtuous circle. Looking ahead, we will be working on new initiatives with UniCredit, such as extending our framework to Poland, implementing target balancing in Finland, and expanding the scope of integration. There will also be industry changes such as SEPA that we will need to integrate into our business. Working with a credible and experienced banking partner, with innovative solutions and a long-term commitment to our business is a major benefit to Golder Group, and we look forward to a long and successful relationship.
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