Published: October 25, 2010
Corporate Treasury at Lafarge acts as an in-house bank to the Group and implements centralisation of the key treasury functions (cash management, financing and financial risk management) as far as possible. The Corporate Treasury team consists of 20 people split between Paris and Brussels. In addition, there is a treasury function in all of the significant business units (BUs), whose treasurers have a strong functional link with corporate treasury.
Corporate Treasury acts as the centre of expertise for the group, publishing policy, guidelines and financial best practices. It assists and supports BUs for all treasury related issues where appropriate. All major external financing is carried out by Lafarge SA, which then provides intercompany financing to group companies as needed. Other external financing to access local currencies and/or local lenders can be made directly at BU level with mandatory and strong support from Corporate Treasury. Cash management is conducted centrally when feasible, with dedicated cash pools in France, UK, US and Canada and also a pan-European, multi-currency cash pool for most other European countries. In total, we work with around 10 cash management banks, with some 200 accounts. There is currently no daily cash centralisation in Asia, Africa Middle East or South America. In these environments Corporate Treasury manages cash recycling and short- to medium-term financing based on a monthly net debt report. Treasury is also the primary counterparty for business units’ hedging requirements. We combine exposures across the business and conduct external hedging transactions, and then perform back-to-back intercompany hedges.
From a technology perspective, we used to have local treasury systems in most of our business units that are linked with local banks and support the relevant domestic formats. While this arrangement satisfied our requirements, it was resource-intensive to maintain different systems and formats. We therefore launched a project in 2007 to select and implement a standard cash and treasury management system across the group, and as part of this project, we made the decision to implement SWIFT connectivity.
Following an extensive review process, we chose Kyriba as a standard system based on a number of criteria such as functionality, user-friendliness, the system’s ability to integrate our banking partners through SWIFT, cost of the solution and other factors. In reality the need to move to the SWIFT connectivity for communicating with our banks had been identified early in the process. Consequently, we made the decision to start connecting all our banks at corporate level with SWIFT, which we could then roll out more globally as a second phase. We spoke to other corporate treasurers who had already made the decision for SWIFT, some of whom managed the SWIFT gateway directly, and others who connected indirectly through a service bureau’. Based on their advice and our own research, we recognised that direct connection to SWIFT would be too complex to administer and maintain, and we lacked sufficient in-house resource and expertise to do this.
We combine exposures across the business and conduct external hedging transactions, and then perform back-to-back intercompany hedges.
We issued a request for proposal (RFP) for a service bureau, and based on an in-depth evaluation, we made the decision to appoint BNP Paribas to provide service bureau services, which are separate from the transaction banking business. We have enjoyed a long and successful relationship with BNP Paribas, and had already been through a major technology project with the bank in the past, migrating from fax-based communication to electronic banking. This project had been a very positive experience and we had confidence that the implementation of SWIFT connectivity would be similarly successful. We were also impressed by the clarity of BNP Paribas’ proposal, the quality of the service, the dedication and expertise of the team and reliability of the technology products and support we had received from the bank over the years. [[[PAGE]]]
We first implemented SWIFT connectivity with 10 banks for our entities in France using the SCORE model. We used the template created by AFTE (Association Française des Trésoriers d’Entreprises) as the basis of the legal agreement with each bank, which made the process easier. We exchanged the first payment message and received the first statement on a test platform with BNP Paribas through the service bureau, and then rolled out the implementation across each of our banks.
Once we had implemented SWIFT connectivity for our French entities, we had gained experience and were able to extend the project internationally. We found that our banking partners had different levels of experience and capability in SWIFT Corporate Access; however, we were able to rely on the skills, expertise and implementation approach offered by BNP Paribas. It was more difficult to apply the same legal agreement when working with banks outside France, and in a number of cases we needed to conclude new and/ or local contracts for connecting foreign entities with some of our banks.
Although we are still going through the implementation process, we have achieved a very good level of acceptance and enthusiasm across our business. Already our Corporate Treasury and business unit treasury teams are experiencing improvements in cash management, process efficiency and security that we could not have achieved so easily or quickly without SWIFT connectivity. We have achieved a high degree of automation from our treasury system Kyriba through our bank communication and payments solution AvantGard Payments (formerly Trax).
We inevitably experienced some challenges bearing in mind the scale and complexity of the project:Firstly, the need to conclude local documentation in addition to or in replacement of the standard SCORE agreement with some of our banks delayed the implementation process. This was specifically the case for banks which did not accept the AFTE contract as the reference template, or banks that required additional documentation to comply with their local organisation (e.g., banks not fully owned by a banking group already connected with us).
Secondly, we started our implementation project based on SWIFT MT formats, but we found that these were not applied consistently across all banks; nevertheless, we always managed to cope with this complexity. We are now moving to XML-based messaging formats, and we hope this will allow greater standardisation.
Thirdly, as we extended the project to our entities in emerging markets, some local banks that we need to access for domestic cash management purposes were not yet in a position to support SWIFT Corporate Access. We initiated the talks, however, and so far, all the banks we have talked to have moved to the SWIFT Corporate Access, which is clearly a great achievement for both parties.Although we are currently sending high value treasury payments through SWIFT, we will in future be expanding our use of SWIFT to mass payments.
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